Poly Medicure Ltd vs Uoi & Anr on 4 November, 2022

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Delhi High Court - Orders

Poly Medicure Ltd vs Uoi & Anr on 4 November, 2022

1. Learned counsels for parties are ad idem that the challenge raised here stands concluded in favor of the petitioner in light of the decision rendered by this Court in Bharat Serums and Vaccines Limited vs. Union of India and Another [2022 SCC OnLine Del 3052]. Dealing with the provisions made in Paragraph 20 of the Drug Prices Control Order, 2013, the Court had, in the aforesaid decision, held as follows:-

"75. From the aforesaid discussion, it is evident that insofar as non-scheduled formulations were concerned, the Government took a conscious decision to leave their prices to be determined by market forces subject to the rider that the annual increase would not exceed 10% and in case of overcharging the manufacturer would have to roll back the prices to the preceding legally permissible price and preserve it at that level for the next twelve months. Viewed in that backdrop it is evident that a manufacturer of a non-scheduled formulation was entitled to fix the price of its drug subject to the singular fetter of the same being compliant with the stipulation of 10% which was sanctioned.

76. The question which then arises is whether a manufacturer Signature Not Verified who breached the 10% increase would result in the manufacturer Digitally Signed By:NEHA Signing Date:09.11.2022 10:14:28 being deprived of its right to that periodical increase and if so for what period of time. The respondents in the impugned communications take the position that any periodical increase that may have accrued to a manufacturer would stand obiterated till the revised price is reduced downwards to fall within the bracket of the permissible 10% increase and that price then maintained for the next twelve months. The aforesaid position which is taken in Bard, is reiterated in Bharat Serum with the respondents noting that it would be ineligible to seek the benefit of the sequential increase of 10% over the prevailing retail price till the price is reduced to fall within the permissible band in terms of Para 20 and held at that level for the next twelve months. Bard while assailing the aforesaid reasoning has contended that the view taken by the respondents has resulted in the freezing of its prices since 2018. They further contend that as a result of the impugned order, they had to bring down the prices of their medical devices to the levels prevailing in 2014-2015, maintain it for the next twelve months and then commence afresh. The aforesaid grievance is liable to be considered in the backdrop of the demand notice for the period 2015-2016 having been issued only in 2019. Similarly, Bharat Serum has demonstrated with the aid of the material existing on the record that it has been held liable to hold the price of its drug at the level prevailing in February 2015 right upto December 2019.

77. The respondents essentially appear to have understood Para 20 to mean that the revisions permissible annually would stand forfeited till such time as remedial action in terms of the 2013 DPCO are taken by the manufacturer. However, that interpretation rests principally not on the date when the infraction occurred but on the date when the violation of Para 20 may come to be discovered either by the respondents or when corrective action may be taken by the manufacturer itself. It is here that the dispute appears to have arisen between the parties. This is evident from a perusal of the demand notice dated 07 November 2019 in the case of Bard which alleged violations during the period 2015-2016 and the notices dated 26 June 2018 and 05 July 2018 alleging overcharging by Bharat Serum during the period February 2014 to December 2019. The question which consequently arises is whether the petitioners are liable to hold the prices of the drugs in question at the permissible retail price for a period of twelve months from the date of issuance of those notices and whether they become disentitled to the periodic increase envisaged under Para 20 for the entire period commencing from the date of overcharging till the expiry of twelve months post the issuance of the impugned notices/demands.

78. It becomes important to pause here and note that if the view as taken by the respondents were to be upheld it would essentially amount to recognizing a principle that a manufacturer would be disentitled to claim the 10% annual increase in the retail price which is guaranteed under Para 20, if it transgresses the first part of Para 20. Secondly, the manufacturer would have to be held to be Signature Not Verified obliged in law to freeze or roll back the retail price of the drug to Digitally Signed By:NEHA Signing Date:09.11.2022 10:14:28 the level which was prevailing prior to the alleged infraction not just from that crucial point in time but to hold it at that level for the entire period commencing from the date of overcharging upto the date of issuance of the demand. Additionally, the manufacturer would have to hold that retail price for the next twelve months from the date of issuance of the demand and the revision permitted thereafter would have to be a 10% increase over the permissible price which prevailed prior to the date of overcharging. It is the correctness of this view that ultimately falls for consideration of the Court.

79. Undisputedly, non-scheduled formulations are not subject to the rigours of price control under the 2013 DPCO. That provision simply places an obligation upon the Government to monitor and oversee that the maximum retail price of such formulations does not exceed 10% of the price which was prevailing in the preceding twelve months. The salutary objective underlying this prescription is clearly manifest bearing in mind the fact that drug prices must necessarily be regulated by the Government in order to ensure that patients and consumers do not face the specter of runaway price increases and to control profiteering. However, Para 20 undoubtedly permits a manufacturer to increase the maximum retail price annually subject to the singular limitation that the price increase would not exceed 10% of the price which was prevailing in the preceding twelve months. The consequences of a breach of the aforesaid prescription is also not left open to speculation with Para 20 in clear and unequivocal terms prescribing the penalty as well as the remedial measures which must be adopted. This is evident from a reading of the latter part of Para 20 which stipulates that in such a situation, the manufacturer would have to roll back the price charged to the legally permissible price which was prevailing in the twelve months preceding the date of violation of Para 20 and to preserve it at that level for the next twelve months. The penalty is then prescribed by Para 20(2) which provides that the manufacturer would be liable to deposit the overcharged amount along with interest from the date in increase of price.

80. Significantly, however, Para 20 does not envisage a deprivation of the right to increase the retail price of a drug annually in case of overcharging. Para 20 spells out and stipulates both the consequences as well as the penalties which would visit a manufacturer in case it were to violate its provisions. The stand taken by the respondents to the effect that the right to seek such increase would stand lost till such time as the price is revised and brought down, would not only amount to a recasting of Para 20, it would also and on more fundamental terms, result in the introduction of a penal consequence which neither flows from a plain reading of that provision nor inferentially.

81. The Court, thus, finds itself unable to read or interpret Para 20 in the manner as suggested by the respondents for the following Signature Not Verified reasons. Firstly, Para 20 does not link the sequential increase which Digitally Signed By:NEHA Signing Date:09.11.2022 10:14:28 a manufacturer can avail of in respect of a non-scheduled formulation to the corrective measures that are liable to be adopted by it if a transgression occurs. The 10% factor attached to the right of sequential increase in the first part of Para 20 is the solitary fetter placed on the manufacturer who is otherwise left free to fix the price of its formulation. Para 20 significantly does not postulate that a transgression of that particular stipulation would result in the manufacturer being deprived of the right to claim an annual revision of the MRP. All that it prescribes is that in case of a violation it must revise the MRP, roll it back to the valid price prevailing in the preceding twelve months and hold it at that level for the next twelve months. It is for the next twelve months alone that the price must remain static as per the statutory command enshrined in Para 20. However, that provision neither envisages nor mandates the right to revise the MRP being effaced beyond the next twelve-month period.

82. It would be pertinent to notice that Para 20 comprises of two separate and distinct identifiable parts. While the former deals with the right of the manufacturer to a sequential increase of 10% annually, the latter deals with the consequences of a violation of the 10% circuit breaker. The latter part of Para 20 kicks into play the moment the manufacturer transgresses the maximum permissible limit of 10%. However, Para 20 nowhere mandates that the right to seek a periodic revision stands lost in case the manufacturer violates the limits prescribed. The Court consequently finds itself unable to accept the interpretation advocated at the behest of the respondents in light of the unambiguous prescription of the consequences of a violation of the former part of Para 20. The language employed by that provision explicitly spells out not just the consequences of a transgression, it also prescribes the period during which remedial measures are to be adopted.

83. As was rightly contended on behalf of the petitioners, the crucial expressions which would throw light on the intent of Para 20 are the expressions "preceding" and "next". The word "preceding" acts as a pointer to the date or the period which would constitute the focal point to identify the legally permissible MRP with reference to which an infraction is liable to be examined. The word "next" denotes and prescribes the period during which the MRP of the formulation must be kept static after being rolled back. For the purposes of identifying the valid MRP against which a periodic 10% increase may be claimed, it is the price prevailing in the preceding year which would govern and decide. Similarly, the period during which the MRP must be revised and kept on hold is also prescribed to be the next twelve months when computed with reference to the date or period of the infraction. Both the commencement as well as the termination of the period during which the MRP must remain frozen has to be necessarily computed with reference to the date or the period during which the manufacturer may have overcharged.

Signature Not Verified Digitally Signed By:NEHA Signing Date:09.11.2022 10:14:28

84. The Court notes that if the view as taken in the impugned orders were to be upheld, it would not only amount to the introduction of an additional penal consequence, it would also shift the terminal point as fixed by Para 20. The interpretation of Para 20 as advocated by the respondents would clearly amount to the Court recasting that provision while undertaking an exercise of statutory interpretation and the introduction of a penalty which has neither been provided for nor contemplated. While the Court is conscious of the fact that the issues involved here relate to drugs and the paramount consideration of the said essential commodity being sold and distributed in a fair and equitable manner, it finds itself unable to introduce in or read into Para 20 a penal consequence which has otherwise not been incorporated by the authors of the statute. It is not for this Court to structure or insert a penal consequence on its own understanding or notions of righteousness. The contention of the respondents based on alleged profiteering is also negated by the penal consequences which are provided for in Para 20 itself and which requires the manufacturer to not only deposit the overcharged amount but to do so along with interest from the date of the transgression.

85. It would be pertinent to observe that Para 20 constructs a complete and comprehensive structure to enable the Government to regulate and monitor the price of non-scheduled formulations. It not only and in unambiguous terms prescribe the price band within which the maximum retail price of such formulations can move, it also stipulates the penal consequences of transgressions. The said provision does not leave any grey area or pocket of ambiguity which may warrant an intervention by the Court or it stepping in to clear the thicket or dispel a cloud of doubt or uncertainty.

xxx xxx xxx

98. Having traversed the issues which were raised in this batch, the Court comes to record the following conclusions:--

A. The 2013 DPCO represents a conscious decision taken by the Union to leave the price of non-scheduled formulations to be determined by market forces subject to the rider that the annual increase would not exceed 10% and in case of overcharging the manufacturer would have to roll back the prices to the preceding legally permissible price and preserve it at that level for the next twelve months.

B. Viewed in that backdrop it is evident that a manufacturer of a non-scheduled formulation was entitled to fix the price of its drug subject to the singular fetter of the same being compliant with the stipulation of 10% which was sanctioned. C. Undisputedly, non-scheduled formulations are not subject to the rigors of price control under the 2013 DPCO. That provision simply places an obligation upon the Government to monitor and oversee that the maximum retail price of such Signature Not Verified formulations does not exceed 10% of the price which was Digitally Signed By:NEHA Signing Date:09.11.2022 10:14:28 prevailing in the preceding twelve months. The salutary objective underlying this prescription is clearly manifest bearing in mind the fact that drug prices must necessarily be regulated by the Government in order to ensure that patients and consumers do not face the specter of runaway price increases and to control profiteering.

D. However, Para 20 undoubtedly permits a manufacturer to increase the maximum retail price annually subject to the singular limitation that the price increase would not exceed 10% of the price which was prevailing in the preceding twelve months. The consequences of a breach of the aforesaid prescription is also not left open to speculation with Para 20 in clear and unequivocal terms prescribing the penalty as well as the remedial measures which must be adopted.

E. Significantly, Para 20 does not envisage a deprivation of the right to increase the retail price of a drug annually in case of overcharging. Para 20 spells out and stipulates both the consequences as well as the penalties which would visit a manufacturer in case it were to violate its provisions. The stand taken by the respondents to the effect that the right to seek such increase would stand lost till such time as the price is revised and brought down, would not only amount to a recasting of Para 20, it would also and on more fundamental terms, result in the introduction of a penal consequence which neither flows from a plain reading of that provision nor can be inferred.

F. The crucial expressions which would throw light on the intent of Para 20 are the expressions "preceding" and "next".

The word "preceding" acts as a pointer to the date or the period which would constitute the focal point to identify the legally permissible MRP with reference to which an infraction is liable to be examined. The word "next" denotes and prescribes the period during which the MRP of the formulation must be kept static after being rolled back. For the purposes of identifying the valid MRP against which a periodic 10% increase may be claimed, it is the price prevailing in the preceding year which would govern and decide.

G. Similarly, the period during which the MRP must be revised and kept on hold is also prescribed to be the next twelve months when computed with reference to the date or period of the infraction. Both the commencement as well as the termination of the period during which the MRP must remain frozen has to be necessarily computed with reference to the date or the period during which the manufacturer may have overcharged.

H. While the Court is conscious of the fact that the issues Signature Not Verified involved here relate to drugs and the paramount consideration Digitally Signed By:NEHA Signing Date:09.11.2022 10:14:28 of the said essential commodity being sold and distributed in a fair and equitable manner, it finds itself unable to introduce in or read into Para 20 a penal consequence which has otherwise not been incorporated by the authors of the statute. It is not for this Court to structure or insert a penal consequence on its own understanding or notions of righteousness.

I. Para 20 therefore must be read as providing a right to manufacturers of non-scheduled formulations to price their products subject to the rider that the increase complies with the 10% stipulation. That right of the manufacturer would be entitled to be factored in notwithstanding it having transgressed the latter part of Para 20 and overcharged. J. The increase of 10% shall stand effaced only for the period of twelve months post the transgression of Para 20 where a manufacturer may have overcharged and violated that provision.

K. In case of a violation of Para 20 and an overcharging event having occurred, the manufacturer would be liable to roll back the price of the drug to the level at which it stood prior to the transgression and hold that price for twelve months post the date or the period of overcharge.

L. For the purposes of computing the liability that would stand raised in the case of an overcharging, the NPPA would be obliged to identity the date or the period during which the price of the drug transgressed Para 20 and require the manufacturer to revert to the price which prevailed prior to that event for a period of twelve months.

M. However the liability to roll back the price of the drug and keep it static at that level cannot extend beyond the twelve month period prescribed under Para 20 and continue up to the raising of a demand or till such time as the transgression is cured. The manufacturer in any case cannot be held liable to keep the price frozen for the period between the date or period of infraction till the date of raising of a demand or till the infraction is rectified by the manufacturer itself. N. While calculating the liability relating to overcharge, the NPPA would have to take into consideration the legally permissible price which must be enforced over the next twelve months commencing from the date or period of infraction, even if that may entail a notional computational exercise being undertaken.

O. In a case where the infraction is discovered many years down the line, in order to arrive at the actual liability owed, the authority would have to reverse the clock and calculate backwards in order to ascertain the legally permissible MRP Signature Not Verified Digitally Signed By:NEHA Signing Date:09.11.2022 10:14:28 which is to be enforced and the period of twelve months during which that price must be preserved.

P. However, for successive periods post the "next twelve months", the manufacturer would be entitled to claim the 10% increase which is otherwise sanctioned by virtue of the first part of Para 20. The computation of liability would have to necessarily factor that into consideration while notionally computing the ultimate overcharge amount. Q. Para 20 has been worded in a manner which is starkly distinct from Para 13. Para 20(1) clearly appears to put in place a self-regulatory mechanism which obligates the manufacturer to ensure that the price that it fixes for non- scheduled formulations does not exceed 10% of the price prevailing in the preceding twelve months. The penalty which would visit a manufacturer in case of a violation of the aforesaid provision is clearly and unambiguously spelt out in that provision itself when it stipulates that in case a manufacturer breaches the maximum permissible increase of 10%, it would be under an obligation to deposit the amount overcharged in excess together with interest. R. Significantly, the compliance with the aforesaid prescriptions is not made dependent upon or subject to an order being made by the NPPA. What places Para 20 in a position distinct from Para 13 of the 1995 DPCO is that unlike the latter which envisages interest being leviable from the date when a manufacturer fails to comply with a demand, the former is not premised on a demand being raised at all. Under Para 20, the manufacturer becomes liable to take steps for reparation the moment an event of overcharging occurs. The trigger event under Para 20 is thus the act of overcharging itself.

S. Sub Para (2) in clear and unequivocal terms mandates that interest shall be payable on the overcharged amount from the date of increase in price. The expression "date of increase in price" must necessarily be understood to be a categorical reference to the date or the period from which interest is ordained to be leviable. Para 20(2) thus appears to leave no room for doubt that interest has to be paid from the date of increase of such price.

T. Para 20 neither contemplates the issuance of a notice nor does it adopt the principle of amount "accrued" as was envisaged under the 1995 DPCO. T.C. Healthcare and all judgments which followed thereafter were essentially construing the provisions of Para 13 of the 1995 DPCO. However, the trigger point in terms of Para 20 is not a notice or a demand but the event of overcharging itself. Secondly, sub para (2) in unequivocal terms prescribes that the interest shall be leviable from the date of increase of price. The Signature Not Verified language of Para 20(2) thus leaves no room to introduce the Digitally Signed By:NEHA Signing Date:09.11.2022 10:14:28 concept of a notice of demand being the precursor to the liability to deposit the overcharged amount along with interest."

2. Since the respondents concede to the legal position as enunciated by the Court in Bharat Serums, this writ petition shall stand allowed. The impugned notices dated 25 July 2018, 01 March 2019 and 12 April 2019 are hereby quashed and set aside. The matter shall stand remitted to the National Pharmaceuticals Pricing Authority ["NPPA"] which shall undertake a fresh exercise of computation with respect to overcharging bearing in mind the observations made by the Court in Bharat Serums.

3. The NPPA while taking a final decision shall also take note of the interim deposit of Rs. 10 lakhs which had been made by the petitioner pursuant to the interim directions issued on 26 February 2021 on this petition as also other deposits which may have been made pursuant to the orders of demand impugned here while undertaking the exercise of recomputation.

YASHWANT VARMA, J.

NOVEMBER 4, 2022 bh Signature Not Verified Digitally Signed By:NEHA Signing Date:09.11.2022 10:14:28

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Delhi High Court - Orders