M/S T.C. Healthcare P. Ltd. & Anr. v. Union of India & Anr.
S. RAVINDRA BHAT, J.
1. This appeal by special leave questions a decisio n of the
Allahabad High Court rejecting a writ petition. In those pr oceedings,
the appellant had challenged the vires of notifications dated 11 th July,
2006 and 30 th April, 2009, which imposed ceiling prices on a drug
formulation, Frusemide.
2. The facts necessary for deciding this appeal are that the
appellants, i.e. TC Healthcare and Modi Mundipharma Pvt. Ltd.
(hereafter “TCH” and “Modi” respectively and “the a ppellants”
collectively), at the relevant time, manufactured drugs. By reason of a
notification dated 2 nd March, 1995, the appellants were exempted from
the regime of price fixation, under the Drugs (Price Control) Order,
1995 (hereafter “DPCO”) as they were small scale units. Para 8 of
the DPCO prescribed that if the Central Government wer e to fix the
price of any bulk drug under Para 3, and such bulk drug is used by a
manufacturer to prepare a formulation, the manufacturer must apply
under Form III for price revision of such formulation, upon which the
Central Government may fix or revise the price of the for mulation.
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3. TCH, at the relevant time, was manufacturing several drug
formulations. It was registered as a small-scale unit (SSU) and therefore,
exempt, by reason of Para 8 of the DPCO, from the drug price control
regime . Likewise, Modi too was, at the relevant time, exempt, as an
SSU, from drug price control. TCH produces and distributes se veral
formulations, including Diucontin K (20mg and 40mg) prepared fr om
the bulk drug Frusemide. Modi on the other hand, ma nufactures
Unicontin (400 mg and 600 mg) derived from the bulk drug
Theophylline. 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 for
non-prosecution. Upon receiving demand notices, it sought for quashing
of the said notification (dated 11 th July, 2006) and the consequent
notifications/ demands, in writ proceedings before the Allahabad High
Court. Similarly, TCH’s writ petition challenged the notification dated
30 th April, 2009, whereby the ceiling price of formulations containing
Frusemide and Potassium were fixed; it also questioned the consequent
demands by the Central Government.
4. Before the High Court, it was contended by the pre sent
appellants that the price fixation exercise was undertaken arbitrarily and
was the result of non-application of mind. It was u rged that the
notification overlooked the cost and efficiency of major manufacturers.
It was also urged that the price fixation through t he impugned
notifications was ultra vires Para 7 of the DPCO, as there were no
price norms in respect of formulations that used the sustain ed release
technology or method in the final product for effective dos e delivery.
It was further urged that the respondents had no figures or details with
respect to cost or efficiency of major manufacturer s and that
consequently, they were obliged to call for such particulars. Similar ly,
in respect of Unicontin, it was urged by Modi that there were no norms
in respect of the continuous release technology used for effecti ve and
efficacious drug delivery.
5. In the impugned judgment, the High Court negatived the
challenge to the notifications on the ground that they were ultra vires
Para 7 of the DPCO, observing that the material brought on record by
the Central Government and other respondents revealed that a set of
questionnaires were designed by the Cost Audit Branch of the Ministry
of Finance to elicit information for various costs for CC, PC and PL
M/S T.C. HEALTHCARE P. LTD. & ANR. v.
UNION OF INDIA & ANR. [S. RA VINDRA BHAT, J.]
norms, which were sent to 470 pharmaceutical producers acro ss the
country, covering a diverse range of products. Further, a press release
was issued and published in newspapers, informing the manufacture rs
about the move to revise the norms, and further seeki ng data and
information. Such data and information was furnishe d by
pharmaceutical manufacturers and companies, and was considered. The
norms were notified on 13 th August, 2008. In that, the conversion cost,
packing charges, process loss of raw materials and other norm s were
fixed.
6. The High Court refuted the charge by the appellants that the
absence of any notice, permitting their participation- i n the drug price
fixation process, vitiated it. The court relied on the judgment of this court
in Union of India v. Cynamide India Ltd. (1987) 2 SCC 720, to the
effect that price fixation is essentially a legislative exercise. The High
Court also rejected the argument that the technology used by TCH and
Modi, i.e. sustained release (SR) and continuous release of dosage
through the products could not be subjected to price fixation as those
methods or technologies were not contemplated by the DPCO, 1995.
7. The relevant provisions of DPCO, 1995, are extracted below:
“2 (v) “Scheduled formulation” means a formulation
containing any bulk drug specified in the First Sch edule
either individually or in combination with other dr ugs,
including one or more than one drug or drugs not speci fied
in the First Schedule except single ingredient form ulation
based on bulk drugs specified in the First Schedule and sold
under 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 OF
FORMULATION—The retail price of a formulation shall be
calculated by the Government in accordance with the
following formula, namely:
R.P. = (M.C. + C.C. + P.M. + P.C.) x (1 + MAPE/100) +
E.D.
“R.P.” means retail price.
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“M.C.” means material cost and includes the cost of drugs
and other pharmaceutical aids used including overag es, if
any, and process loss there on in accordance with such norms
as may be specified by the government from time to t ime by
notification in the official gazette in this behalf .
“C.C” means conversion cost worked out in accordance with
established procedures of costing and shall be fixe d as a
norm every year by notification in the Official Gazette i n this
behalf.
“P.M.” means the cost of packing material used in t he
packing of a concerned formulation, including process loss,
and shall be fixed as a norm every year by notifica tion in
the Official Gazette in this behalf.
“P.C.” means packing charges worked out in accordan ce
with established procedures of costing and shall be fi xed as
a norm every year by notification in the Official Ga zette in
this behalf.
“MAPE” (Maximum Allowable Post Manufacturing
Expenses) means all costs incurred by a manufacturer f rom
the stage of ex-factory cost to retailing and inclu des trade
margin and margin for the manufacturer and it shall not
exceed One hundred per cent for indigenously manufacture d
Scheduled formulations:
“E.D.” means excise duty.
Provided that in the case of an imported formulatio n, the
landed cost shall form the basis for fixing its pri ce along
with such margin to cover selling and distribution e xpenses
including interest and importer’s profit which shall not ex ceed
fifty per cent of the landed cost.
Explanation—For the purpose of this proviso, “landed cost ”
means the cost of import of formulation inclusive of cus toms
duty and clearing charges.
The relevant provision in DCPO 1987, i.e. Para 10,
significantly, provided that retail cost had to be calculated
in the following manner:
M/S T.C. HEALTHCARE P. LTD. & ANR. v.
UNION OF INDIA & ANR. [S. RA VINDRA BHAT, J.]
“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 drugs
and other pharmaceutical aids used including overag es, if
any, and process loss there on in accordance with such norms
as may be specified by the government from time to t ime by
notification in the official gazette in this behalf .
“C.C” means conversion cost worked out in accordance with
such norms as may be specified by the government from time
to time by notification in the official gazette in t his behalf.
“P.M.” means the cost of packing material including process
loss thereon worked out in accordance with such nor ms as
may be specified by the government from time to tim e by
notification in the official gazette in this behalf .
“P.C.” means packing charges worked out in accordan ce
with such norms as may be specified by the government fr om
time to time by notification in the official gazett e in this
behalf.
“M.U.” means mark-up referred to in para 11.
“E.D.” means excise duty.
**************
8(4). Any manufacturer, who desires revision of the retail
price of a formulation fixed under sub-paragraph (1 ), shall
make an application to the, Government in Form III or Form
IV, as the case maybe, and the Government shall after making
such enquiry, as it deems fit within a period of tw o months
from the date of receipt of the complete informatio n, fix a
revised price for such formulation or reject the ap plication
for revision for reasons to be recorded in writing.
**************
8(6) No manufacturer or importer shall market a new pac k,
if not covered under sub-paragraph 3 of para 9, or a new
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formulation or a new dosage form of his existing Schedul ed
formulation without obtaining the prior approval of its pric e
from the Government.
9. Power to fix ceiling price of Scheduled formulat ions:
1. Notwithstanding anything contained in this Order, the
Government may, from time to time, by notification in
the Official Gazette, fix the ceiling price of a Schedule d
formulation in accordance with the formula laid down
in paragraph 7, keeping in view the cost or efficiency ,
or both, of major manufacturers of such formulations
and such price shall operate as the ceiling sale pri ce
for all such packs including those sold under generic
name and for every manufacturer of such formulations.
2. The Government may, either on its own motion or on
application made to it in this behalf by a manufacturer
in Form III or Form IV, as the case may be, after
calling for such information as it may consider
necessary, by notification in the Official Gazette, fix
a revised ceiling price for a Scheduled formulation .
3. With a view to enabling the manufacturers of simil ar
formulations to sell those formulations in pack siz e
different to the pack size for which ceiling price has
been notified under the sub-paragraphs (1) and (2),
manufacturers shall work out the price for their
respective formulation packs in accordance with suc h
norms, as may be notified by the Government from time
to time, and he shall intimate the price of formulation
pack, so worked out, to the Government and such
formulation packs shall be released for sale only after
the expiry of sixty days after such intimation.
**************
13. Power to recover Overcharged Amount: Notwithstanding
anything contained in this order, the Government sh all by
notice, require the manufacturers, importers or distr ibutors,
as the case maybe, to deposit the amount accrued du e to
charging of prices higher than those fixed or notified b y the
M/S T.C. HEALTHCARE P. LTD. & ANR. v.
UNION OF INDIA & ANR. [S. RA VINDRA BHAT, J.]
Government under the provisions of Drugs (Prices Co ntrol)
Order, 1987 and under the provisions of this Order. ”
9. The appellants argue before this court, that the High Court
erred in overlooking that the “sustained release” and “continuous
release” technologies used in their products had not been m ade the
subject of any price fixation norm. Therefore, the price fixation resorted
to in their case was contrary to law. The learned s enior counsel
appearing on their behalf submitted that the High Court had fallen into
error in this regard, and consequently, its decision requires to be set
aside.
10. The High Court, in the impugned judgment, we notice, had
taken note of the notification dated 13 th August, 2008, which fixed
conversion costs for plain tablets, coated tablets, dispers ible tablets,
gelatin coated tablets, bi layered tablets, sustained release tablets,
chewable tablets, effervescent tablets, inlay tablets, capsules and other
drugs. The appellants had not urged that different conversion costs were
fixed for controlled release system, or the continuous release sys tems,
anytime. In these circumstances, it was held that the pricing norms were
applicable. 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 differen t drug
delivery systems or any other special features/forms cl aimed,
the ceiling prices, as specified in Column 5 above, shall be
applicable unless the companies approach NPPA for specific
price approvals for its formulations”
11. In this case, the appellants did not approach NPPA for specific
price, or contend before it that their products contained special features.
On the other hand, the allusion to “sustained release” and drug delivery
systems (in Note (d)) clearly contemplated that unl ess otherwise
specifically sought- in regard to particular drugs, the price fixation norms
applied to all.
12. According to pharmacopedias and the US Food and Drug
Administration’s definitions, modifications in drug release a re often
desirable to increase the stability, safety and efficac y of the drug, to
improve the therapeutic outcome of the drug treatment and/or to increase
patient compliance and convenience of administration. In that context,
the use of the term “sustained release” denotes the systems that
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maintain the rate of drug release over a sustained period. For example,
if the release of the drug from the dosage form is sustai ned such that
the release takes place throughout the entire gastrointestina l tract, one
could prolong the time interval of drug concentration in the therapeutic
range. This in turn may reduce the frequency of dosing, for exampl e
from three times a day to once a day. Sustained-release dosage forms
achieve this mostly by the use of suitable polymers, used either to coat
granules or tablets (reservoir systems) or to form a mat rix in which
the drug is dissolved or dispersed (matrix systems). Controlled release
systems are drug delivery systems in which the drug is released in a
predetermined pattern over a fixed period of time. T herefore, the
materials on the record show that the DPCO was awar e of the
existence of different systems of drug delivery; it specifically talked of
sustained release. If the appellants wished to say that the systems used
by them were unique or different, it was open for them t o have so
demonstrated. Their omission to do so, did not in any way affect their
obligation to follow the pricing norms and ceiling prices fi xed by the
impugned notifications. This court, therefore, sees no reason to differ
from the conclusions and findings of the High Court.
13. In view of the above analysis, these appeals have to fail. They
are accordingly dismissed, without order on costs.
Nidhi Jain Appeals dismissed.
M/S T.C. HEALTHCARE P. LTD. & ANR. v.
UNION OF INDIA & ANR. [S. RA VINDRA BHAT, J.]