M/S T.C.Healthcare P. Ltd. vs Union Of India

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 4687 OF 2010

M/S T.C. HEALTHCARE P. LTD. & ANR. ...APPELLANT(S)

VERSUS

UNION OF INDIA & ANR. ...RESPONDENT(S)

WITH

CIVIL APPEAL NO. 4679 OF 2010

AND

CIVIL APPEAL NO. 10687 OF 2011

JUDGMENT

S. RAVINDRA BHAT, J.

1. This appeal by special leave questions a decision of the

Allahabad High Court rejecting a writ petition. In those Signature Not Verified Digitally signed by R NATARAJAN Date: 2019.11.15 15:04:13 IST Reason: proceedings, the appellant had challenged the vires of 2

notifications dated 11th July, 2006 and 30th 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 appellants”

collectively), at the relevant time, manufactured drugs. By

reason of a notification dated 2nd 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 were 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

formulation.

3. TCH, at the relevant time, was manufacturing several drug

formulations. It was registered as a small­scale unit (SSU) and

therefore, exempt, by reason of Para 8 of the DPCO, from the 3

drug price control regime. Likewise, Modi too was, at the

relevant time, exempt, as an SSU, from drug price control. TCH

produces and distributes several formulations, including

Diucontin K (20mg and 40mg) prepared from the bulk drug

Frusemide. Modi on the other hand, manufactures 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 non­prosecution. 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 present

appellants that the price fixation exercise was undertaken

arbitrarily and was the result of non­application of mind. It was 4

urged that the notification overlooked the cost and efficiency of

major manufacturers. It was also urged that the price fixation

through the impugned notifications was ultra vires Para 7 of the

DPCO, as there were no price norms in respect of formulations

that used the sustained release technology or method in the

final product for effective dose delivery. It was further urged that

the respondents had no figures or details with respect to cost or

efficiency of major manufacturers and that consequently, they

were obliged to call for such particulars. Similarly, in respect of

Unicontin, it was urged by Modi that there were no norms in

respect of the continuous release technology used for effective

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 norms, which were sent to 470

pharmaceutical producers across the country, covering a diverse 5

range of products. Further, a press release was issued and

published in newspapers, informing the manufacturers about

the move to revise the norms, and further seeking data and

information. Such data and information was furnished 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 norms were fixed.

6. The High Court refuted the charge by the appellants that

the absence of any notice, permitting their participation­ in 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.

6

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 Schedule either individually or in combination with other drugs, including one or more than one drug or drugs not specified in the First Schedule except single ingredient formulation 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

FORMULATION­­The 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.

7

"M.C." means material cost and includes the cost of

drugs and other pharmaceutical aids used

including overages, if any, and process loss there

on in accordance with such norms as may be

specified by the government from time to time 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 fixed as a norm every year by

notification in the Official Gazette in this behalf.

"P.M." means the cost of packing material used in

the packing of a concerned formulation, including

process loss, and shall be fixed as a norm every

year by notification in the Official Gazette in this

behalf.

"P.C." means packing charges worked out in

accordance with established procedures of

costing and shall be fixed as a norm every year 8

by notification in the Official Gazette in this

behalf.

"MAPE" (Maximum Allowable Post Manufacturing

Expenses) means all costs incurred by a

manufacturer from the stage of ex­factory cost to

retailing and includes trade margin and margin

for the manufacturer and it shall not exceed One

hundred per cent for indigenously manufactured

Scheduled formulations:

"E.D." means excise duty.

Provided that in the case of an imported

formulation, the landed cost shall form the basis

for fixing its price along with such margin to cover

selling and distribution expenses including

interest and importer's profit which shall not

exceed fifty per cent of the landed cost.

Explanation­­For the purpose of this proviso,

"landed cost" means the cost of import of 9

formulation inclusive of customs 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:

"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 overages, if any, and process loss

there on in accordance with such norms as may

be specified by the government from time to time

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 10

by the government from time to time by

notification in the official gazette in this behalf.

"P.M." means the cost of packing material

including process loss thereon 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 this behalf.

"P.C." means packing charges 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 this behalf.

"M.U." means mark­up 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, 11

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

two months from the date of receipt of the

complete information, fix a revised price for such

formulation or reject the application for revision

for reasons to be recorded in writing.

**************

8(6) No manufacturer or importer shall market a

new pack, if not covered under sub­paragraph 3

of para 9, or a new formulation or a new dosage

form of his existing Scheduled formulation

without obtaining the prior approval of its price

from the Government.

9. Power to fix ceiling price of Scheduled

formulations:

1. Notwithstanding anything contained in this

Order, the Government may, from time to time, by 12

notification in the Official Gazette, fix the ceiling

price of a Scheduled 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 price

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

similar formulations to sell those formulations in

pack size different to the pack size for which 13

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 such 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 shall by notice, require

the manufacturers, importers or distributors, as

the case maybe, to deposit the amount accrued

due to charging of prices higher than those fixed

or notified by the Government under the 14

provisions of Drugs (Prices Control) 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 made the subject of any price fixation norm. Therefore, the

price fixation resorted to in their case was contrary to law. The

learned senior 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 13th August, 2008, which

fixed conversion 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 other drugs. The appellants had not

urged that different conversion costs were fixed for controlled

release system, or the continuous release systems, anytime. In

these circumstances, it was held that the pricing norms were 15

applicable. The court also extracted Note (d) to the notification of

30th April, 2009, which pertinently stated that:

“(d) For different packing materials used or

different drug delivery systems or any other

special features/forms claimed, 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 unless 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 are

often desirable to increase the stability, safety and efficacy of the

drug, to improve the therapeutic outcome of the drug treatment 16

and/or to increase patient compliance and convenience of

administration. In that context, the 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 that the release

takes place throughout the entire gastrointestinal tract, one

could prolong the time interval of drug concentration in the

therapeutic range. This in turn may reduce the frequency of

dosing, for example from three times a day to once a day.

Sustained­release dosage forms achieve this mostly by the use of

suitable polymers, used either to coat granules or tablets

(reservoir systems) or to form a matrix 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. Therefore,

the materials on the record show that the DPCO was aware 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 to have so demonstrated. Their omission to do so, did 17

not in any way affect their obligation to follow the pricing norms

and ceiling prices fixed 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.

........................................J. [ARUN MISHRA]

........................................J. [VINEET SARAN]

........................................J. [S. RAVINDRA BHAT]

New Delhi, November 15, 2019.