Court holds price regulator could not recover alleged excess amount without specifically fixing ceiling price under DPCO 1995; broad 2009 notification struck down as ultra vires.
The Bombay High Court has set aside demand notices issued against M/s Pharmed Limited for alleged overcharging on its osteoarthritis medicine, Cartigen Forte, holding that the National Pharmaceutical Pricing Authority (NPPA) could not recover any amount unless it had first fixed a specific ceiling price for that formulation in accordance with the Drugs (Price Control) Order, 1995 (DPCO 1995).
A Division Bench of Justices Manish Pitale and Shreeram V. Shirsat ruled that the regulator’s reliance on a 2007 notification for multivitamin and mineral tablets and capsules was misplaced. The court found that Cartigen Forte was not a multivitamin or mineral product, but a formulation whose active ingredients were Glucosamine Sulfate Potassium Chloride, Chondroitin Sulfate Sodium and Methyl Sulfonyl Methane. Though the earlier version of the product contained small quantities of vitamin C and vitamin E, the court said that was not enough to bring the entire formulation within the scope of the 2007 notification.
The court emphasized that under Paragraph 9 of DPCO 1995, the Government or NPPA must fix the ceiling price of a scheduled formulation by notification in the Official Gazette and must do so in accordance with the formula prescribed in Paragraph 7. That formula requires consideration of material cost, conversion cost, packing charges, post-manufacturing expenses and excise duty. In the present case, the court held, no such exercise was undertaken for Cartigen Forte.
The Bench also struck down the NPPA’s 30 January 2009 notification, which stated that any formulation containing any scheduled drug ingredient would automatically be subject to the ceiling price mentioned in the relevant notification unless a specific price had been fixed separately. The court held that this blanket approach was too broad, bypassed the mandatory pricing formula under Paragraph 7, and amounted to an abdication of the statutory duty to fix prices properly. The notification was declared ultra vires DPCO 1995 in its entirety.
Once the foundational notifications were found unsustainable, the consequential recovery notices issued by the Collector and Tehsildar under the Maharashtra Land Revenue Code, 1966 also collapsed, the court said. It noted that the revenue authorities had no independent basis to recover the alleged dues if the NPPA’s demand itself was invalid.
The court further observed that the interest component demanded from Pharmed could not run from the original demand period, since much of the delay had occurred because of the NPPA’s own conduct and earlier proceedings had been set aside for violation of natural justice. Relying on its earlier decision in Franco Indian Remedies Pvt. Ltd., the Bench indicated that interest, at the highest, could be computed only from the later demand notice issued after remand.
Allowing the writ petition, the High Court quashed the 2007 notification to the extent it was applied to Cartigen Forte and struck down the 2009 notification in full. It directed that the respondents shall not act upon the impugned demand notices against the petitioners.
Bottom Line :-
Drugs (Price Control) Order, 1995 - NPPA cannot recover alleged overcharged amount for a formulation without specifically fixing ceiling price of that formulation in accordance with paragraph 7 read with paragraph 9 of DPCO 1995 - Broad notification deeming any formulation containing any scheduled drug ingredient to be subject to an existing ceiling price is ultra vires DPCO 1995.
Statutory provision(s): Essential Commodities Act, 1955 Section 3, Drugs (Price Control) Order, 1995 Paragraphs 2(h), 2(v), 2(u), 4, 7, 8, 9, 11, 20, Maharashtra Land Revenue Code, 1966 Section 267
M/s. Pharmed Limited v. Union of India, (Bombay)(DB) : Law Finder Doc id # 2983391
