Cipla Limited vs State Of Maharashtra Thr. Gp And Ors on 1 April, 2025

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Bombay High Court

Cipla Limited vs State Of Maharashtra Thr. Gp And Ors on 1 April, 2025

1. This petition under Article 226 of the Constitution of India challenges the order dated 17 March 2022 passed by Respondent No. 2- Licensing Authority & Joint Commissioner, Drugs (Konkan Division), whereby the petitioner's licence, granted under Form 28-A of The Drugs Rules, 1945 (for short, "Drugs Rules") and under the provisions of Rule 78-A, is suspended for a period of one month with effect from 21 June 2022 to 20 July 2022. Under such license, the petitioner was permitted to manufacture "Remdesivir Injection 100mg/20ml (for short "the said drug"), which was being administered to the patients infected with the COVID-19 virus. The impugned suspension dated 17 March 2022 was assailed by the petitioner before the Respondent No.3/Appellate Authority i.e. the State Government/the Hon'ble Minister for Food and Drug (for short "the Appellate Authority") who has passed the impugned order dated 23 March 2023, by which the petitioner's appeal had been rejected. Consequent thereto, respondent no.2 by an order 13 April 2023 issued as a consequence of the dismissal of the appeal a fresh period of suspension of the petitioner's licence being the period from 8 May 2023 to 6 June 2023 was communicated to the petitioner. These orders are assailed in the present proceedings.

2. The case of the petitioner is to be noted :- The petitioner was issued Rajesh Chittewan, PS Page 2 of 14 ::: Uploaded on - 01/04/2025 ::: Downloaded on - 01/04/2025 22:19:43 :::

6. WP 6054-2023-CIPLA.doc a licence under Rule 28-A of the Drugs Rules on 27 July 2020. Thereafter on 13 August 2020, the petitioner entered into a loan license agreement with one M/s Kamla Lifesciences Limited ("Kamla" for short) for the manufacture of the said drug. Kamla was granted a licence under Form 28 of the Drugs Rules by Respondent No.2/Licensing Authority. A copy of the license granted to Kamla is placed on record, which indicates that the license being issued on 22 October 2019, was valid from 1 September 2019 to 31 August 2024. Accordingly, under the loan license agreement as entered between the petitioner and Kamla, the said drug was manufactured by Kamla.

3. It so happened that one sample of the said drug purportedly manufactured by Kamla being Batch No. R310019, D/M Mar 2021, D/E- Nov 2021 was seized by the said authorities from the market and the same was sent to a laboratory, RDTIL, Chandigarh, which examined the said sample and made a report dated 16 July 2021, which reads thus:

"The Sample does not confirm to claim as per the patent and proprietary in respect to the identification. Remark As desired sample was tested for the presens of pipfracillin and tazobactam and found posi for piperalilin and tazobatam."

It is on such premise the petitioner as also Kamla was issued a show cause notice dated 5 October 2021, calling upon to show cause as to why their license should not be cancelled, for violation of the rules under which it Rajesh Chittewan, PS Page 3 of 14 ::: Uploaded on - 01/04/2025 ::: Downloaded on - 01/04/2025 22:19:43 :::

6. WP 6054-2023-CIPLA.doc was issued. The petitioner responded to the said show cause notice, however, as the reply was not found to be satisfactory, respondent no. 2 on 17 March 2022 passed the impugned order, suspending the petitioner's license for the initial period of one month as noted by us hereinabove. Against such order passed by Respondent No. 2/licensing authority, the petitioner preferred an appeal before the Appellate Authority/State Government as per the provisions of Rule 85(3) of the Drugs Rules. The case of the petitioner as also Kamla before the Appellate Authority is that the sample, which was seized, was neither manufacture by the petitioner nor Kamla and it was a counterfeit manufacture by a third party. Kamla also filed an appeal against the order surrendering its license.

4. On 16 June 2022, an ad-interim stay was granted by the State Government to the said order dated 17 March 2022. Thereafter, Kamla's appeal was taken up for hearing, on which the Appellate Authority passed an order dated 28 June 2022, allowing Kamla's appeal, whereby the order dated 17 March 2022 surrendering Kamla's license passed against Kamla was set aside, with a caution being given to Kamla that such incidents ought not to happen in future.

5. However, insofar as the petitioner was concerned, by the impugned order dated 23 March 2023 passed by the Appellate Authority, the petitioner's appeal has been rejected on the ground that the petitioner has breached the provisions of Rule 78 and more particularly Rules 78(a)(i), Rajesh Chittewan, PS Page 4 of 14 ::: Uploaded on - 01/04/2025 ::: Downloaded on - 01/04/2025 22:19:43 :::

6. WP 6054-2023-CIPLA.doc 78(c), 78(e), 78(f), 78(h) and 78(p) of the Drugs Rules. Accordingly, the petitioner suffers a suspension of its license for the period commencing from 8 May 2023 to 6 June 2023, in view of the consequential order passed by respondent no. 2 dated 23 March 2023. It is on such conspectus, the petitioner has filed this petition.

6. By an order dated 3 May 2023, a co-ordinate Bench of this Court had granted ad-interim relief to the petitioner whereby the impugned order was stayed. Such protection has continued to operate till date.

7. Mr. Ponda, learned senior counsel for the petitioner, in supporting the challenge as made in the petition, would submit that this is a clear case where respondent no. 2 has acted without jurisdiction for the reason that when the petitioner was holding a license under Form 28-A, there was a question of respondent no. 2-Licensing Authority alleging the breach of Rule 78 which was per se not applicable, insofar as the loan license agreement was concerned, to manufacture for sale, being the beneficiary, under the license under Form 28-A. Mr. Ponda has taken us through the licenses granted to the petitioner in Form-28A, dated 28 July 2020 (Exhibit 'F') as also Rule 78 of the Drugs Rules, a breach of which has been invoked against the petitioner, adherence of which being one of the conditions of the license, who are granted licenses in Form 28, Form 28-B and Form D and not Form 28-A, as in the case of the petitioner. In other words, Mr. Ponda's submission is that the conditions of license, which are Rajesh Chittewan, PS Page 5 of 14 ::: Uploaded on - 01/04/2025 ::: Downloaded on - 01/04/2025 22:19:43 :::

6. WP 6054-2023-CIPLA.doc attributed to the licensees who fall under a different category, than the petitioner are sought to be applied to the petitioner, when breach of Rule 78 is being alleged against the petitioner. His contention is that once a license was admittedly granted to the petitioner under Rule 28-A, necessarily, any breach attributed to the petitioner could only be the conditions of license as prescribed under Rule 78-A, which is not the case as alleged in the show cause notice or any other materials on record. It is accordingly his submission that once respondent no. 2 has applied the rules which are not applicable, and compliance of which is not expected and/or mandated by law qua the petitioner, the authorities could not have proceeded to adjudicate the show cause notice, which itself was per se without jurisdiction. It is his submission that such basic consideration has been completely overlooked by respondent no. 2 as also by the Appellate Authority, in passing the impugned order, dismissing the petitioner's appeal. He submits that apart from the issue of jurisdiction which goes to the root of the matter, the Authority has acted arbitrarily inasmuch as there was no procedure followed in the sample being gathered in the case of the petitioner, as also in case of Kamla, as it was a counterfeit manufacture. Insofar as the sample was concerned, neither Kamla nor the petitioner had manufactured such drug corresponding to the sample, and all such issues which are considered in the appropriate perspective and /or inquired or investigated in passing the original order surrendering the Rajesh Chittewan, PS Page 6 of 14 ::: Uploaded on - 01/04/2025 ::: Downloaded on - 01/04/2025 22:19:43 :::

6. WP 6054-2023-CIPLA.doc petitioner's license.

8. Mr. Ponda would also submit that in so far as Kamla is concerned, the Appellate Authority has set aside the order of suspension of its license, who was in fact the regular manufacturer of the drug subject matter of the counterfeit sample under the license as availed by Kamla under Form 28 and in pursuance of the agreement as entered between the petitioner and Kamla. It is thus submitted that it would be too far-fetched that the petitioner is held guilty of any breach of what has been charged against the petitioner under the show cause notice. It is his submission that on all such issues, the impugned order deserves to be quashed and set aside.

9. On the other hand, Ms. Gavhane, learned A.G.P. has supported the impugned orders. She has referred to the reply affidavit filed on behalf of the respondents to buttress her submissions in contending that in fact, it was the petitioner who was in breach of all the terms and conditions attributed to the license and under the Drugs Rules, as clearly held in the observations which are made by respondent no. 2 as also by the Appellate Authority. Ms. Gavhane, however, would fairly submit that it cannot be disputed that the petitioner was granted license under Form 28-A and for which the relevant rule as applicable would be Rule 78-A. She has also made submissions on the basis of the report which was received from the competent authority in respect of the sample, which is the contention on merits.

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10. We have heard learned counsel for the parties. We have also perused the record.

11. At the outset, we may observe that it is an admitted position that the petitioner was granted license in Form 28-A, which would necessarily imply that the conditions of license as prescribed under Rule 78-A became applicable and such conditions are contained in Rule 78-A (1) to (9). We also find that the license which was granted to Kamla is admittedly in Form 28 and in respect of which the conditions which should be incorporated and required to be complied would be conditions as applicable under Rule 78, which are contained in sub-rules (a) to (r). Perusal of Rules 78 and 78-A, clearly shows that their compliances are different, insofar as these categories of licensees are concerned. Rules 78 and 78-A of the Drugs Rules, read thus :-

"78. Conditions of license.

- A license in Form 28, Form 28-B or Form 28-D shall be subject to the special conditions, if any, set out in Schedule F or Schedule F(I), as the case may be, which relate to the substance in respect of which the license is granted and to the following general conditions:-

(a) (i)The licensee shall provide and maintain an adequate staff and adequate premises and plant for the proper manufacture and storage of the substances in respect of which the license is issued;

(ii)without prejudice to the generality of the foregoing requirement, every holder of a license who for any purpose engaged in the culture or manipulation of pathogenic spore-bearing micro-organisms shall provide to the satisfaction of the licensing authority separate laboratories and utensils and apparatus required for the culture or manipulation of such micro-organisms, the laboratories, utensils and apparatus so provided not being used for the manufacture of any other substance;

(b) The licensee shall provide and maintain staff, premises and equipment as specified in rule 76;

(c) (i) The licensee shall maintain records of manufacture as per particulars given in Schedule U. Rajesh Chittewan, PS Page 8 of 14 ::: Uploaded on - 01/04/2025 ::: Downloaded on - 01/04/2025 22:19:43 :::

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(ii) The licensee shall either in his own laboratory or in any laboratory approved by the licensing authority under Part XV(A) to these rules test each batch or lot of the raw material used by him for the manufacture of his product and also each batch of the final product and shall maintain records or registers showing the particulars in respect of such tests as specified in Schedule U. The records or registers shall be retained in the case of a substance for which a potency date is fixed for a period of two years from the expiry of such date, and in the case of other substances for a period of five years from the date of manufacture;

(d) The licensee shall allow an Inspector appointed under the Act, to enter, with or without prior notice, any premises where the manufacture is carried on and to inspect the premises, and in the case of substances specified in Schedules C and C(1), to inspect the plant and the process of manufacture and the means employed for standardizing and testing the substance;

(e) The licensee shall allow an Inspector, appointed under the Act, to inspect all registers and records maintained under these rules and to take samples of the manufactured product and shall supply to such Inspector such information as he may require for the purpose of ascertaining whether the provisions of the Act and rules thereunder have been observed;

(f) The licensee shall from time to time report to the licensing authority any changes in the expert staff responsible for the manufacture or testing of the substance and any material alterations in the premises or plant used for that purpose which have been made since the date of the last inspection made on behalf of the licensing authority before the issue of the license;

(g) The licensee shall on request furnish to the licensing authority or controlling authority or to such authorities as the licensing authority or the controlling authority may direct, from every batch of drugs as the licensing authority or the controlling authority may from time to time specify, a sample of such quantity as may be considered adequate by such authority for any examination and, if so required, also furnish full protocols of the tests which have been applied.

(h) If the licensing authority or the controlling authority so directs, the licensee shall not sell or offer for sale any batch in respect of which a sample is, or protocols are furnished under the last preceding sub-paragraph until a certificate authorizing the sale of the batch has been issued to him by or on behalf of the licensing authority or the controlling authority;

(i) The licensee shall on being informed by the licensing authority or the controlling authority that any part of any batch of the substance has been found by the licensing authority or the controlling authority not to conform with the standards of strength, quality or purity specified in these rules and on being directed so to do, withdraw the remainder of that batch from sale and so far as may in the particular circumstances of the case be practicable recall all issues already made from that batch;

(j) No drug manufactured under the license shall be sold unless the precautions necessary for preserving its properties have been observed throughout the period after manufacture;

(k) The licensee shall comply with the provisions of the Act and of these rules and with such further requirements, if any, as may be specified in any rules subsequently made under Chapter IV of the Act, provided that where such further requirements are specified in the rules, these would come into force four months after publication in the Official Gazette;

(l) The licensee shall maintain an Inspection Book in Form 35 to enable an Inspector to record his impressions and defects noticed;

(m) The licensee shall maintain reference samples from each batch of the drugs manufactured by him in a quantity which is at least twice the quantity of the drug Rajesh Chittewan, PS Page 9 of 14 ::: Uploaded on - 01/04/2025 ::: Downloaded on - 01/04/2025 22:19:43 :::

6. WP 6054-2023-CIPLA.doc required to conduct all the tests performed on the batch. In case of drugs bearing an expiry date on the label the reference samples shall be maintained for a period of three months beyond the date of expiry of potency. In case of drugs where no date of expiry of potency is specified on the label, the reference samples shall be maintained for a period of three years from the date of manufacture;

(n) The licensee, who has been granted a license in Form 28-B shall-

(i) forward to the licensing authority of the concerned States of manufacture and supply of drug a statement of the sales effected to the manufacturers, wholesalers, retailers, hospitals, dispensaries, Nursing Homes and Registered Medical Practitioners every three months;

(ii) maintain accounts of all transactions giving details as indicated below in a register bound and serially page numbered, and such records shall be retained for a period of five years or one year after the date of expiry of potency, whichever is later.

A. Account of the drugs specified in Schedule X used for the manufacture :-

1. Date of issue.

2. Name of the drug.

3. Opening balance of stock on the production day.

4. Quantity received, if any, and source from where received.

5. Quantity used in manufacture

6. Balance quantity on hand at the end of the production day.

7. Signature of the person in charge B. Account of production:-

1. Date of manufacture.

2. Name of the drug.

3. Batch Number.

4. Quantity of raw material used in manufacture.

5. Anticipated yield.

6. Actual yield.

7. Wastage.

8. Quantity of the manufactured goods transferred to stock.

C. Accounts of the manufactured drugs:-

1. Date of manufacture.

2. Name of the drug.

3. Batch Number.

4. Opening Balance.

5. Quantity manufactured.

6. Quantity sold.

7. Name of the purchaser and his address.

8. Balance quantity at the end of the day.

(o) The licensee shall store drugs specified in Schedule X in bulk form and when any such drug is required for manufacture it shall be kept in a separate place under direct custody of a responsible person;

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(p) The licensee shall comply with the requirements of "Good Laboratory Practices"

as laid down in Schedule L-I and "Good Manufacturing Practices" as laid down in Schedule M"

(q) No advertisement of the drugs specified in Schedule H, Schedule H1 and Schedule X shall be made except with the previous sanction of the Central Government.

(r) the applicant shall submit the result of bio-equivalence study referred to in Schedule Y, along with the application for grant of a licence of oral dosage form of drugs specified under category II and category IV of the bio-pharmaceutical classification system.

78-A. Conditions of license in Form 28A or Form 28DA.

(1) The license in Form 28A or Form 28DA shall be deemed to be canceled or suspended, if the license owned by the licensee in Form 28 or Form 28DA whose manufacturing facilities have been availed of by the licensee is canceled or suspended, as the case may be, under these rules.

(2) The licensee shall comply with the provisions of the Act, and of these rules and with such further requirements if any, as may be specified in any rules subsequently made under Chapter IV of the Act, provided that where such further requirements are specified in the rules, those would come into force four months after publication in the Official Gazette.

(3) The licensee shall test each batch or lot of the raw material used by him for the manufacture of his products and also each batch of the final product and shall maintain records or registers showing the particulars in respect of such tests as specified in Schedule U. Records or registers shall be retained, in the case of a substance for which a potency date is fixed, for a period of two years from the expiry of such date and in the case of other substances, for a period of five years from the date of manufacture. The licensee shall allow an Inspector to inspect all registers and records maintained under these rules and shall supply to the Inspector such information as he may require for the purpose of ascertaining whether the provisions of the Act and these rules have been observed. (4) The licensee shall either (i) provide and maintain to the satisfaction of the licensing authority adequate staff and adequate laboratory facilities for carrying out tests of the strength, quality and purity of the substances manufactured by him, or (ii) make arrangements with some institution approved by the licensing authority for such tests to be regularly carried out on his behalf by the institution.

(5) The licensee shall furnish to the licensing authority, if required to do so, data on the stability of drugs which are likely to deteriorate for fixing the date of expiry which would be printed on the labels of such drugs on the basis of the date so furnished.

(6) The licensee shall maintain reference samples from each batch of the drugs manufactured by him in a quantity which is at least twice the quantity of the drug required to conduct all the tests performed on the batch. In case of drugs bearing an expiry date on the labels, the reference samples shall be maintained for a period of three months beyond the date of expiry of potency. In case of drugs where no date of expiry of potency is specified on the label, the reference samples shall be maintained for a period of three years from the date of manufacture.

(7) The licensee shall maintain an Inspection Book in Form 35 to enable an Inspector to record his impressions and the defects noticed. (8) No advertisement of the drugs specified in Schedule H, Schedule H1 and Rajesh Chittewan, PS Page 11 of 14 ::: Uploaded on - 01/04/2025 ::: Downloaded on - 01/04/2025 22:19:43 :::

6. WP 6054-2023-CIPLA.doc Schedule X shall be made except with the previous sanction of the Central Government.

(9) the applicant shall submit the result of bio-equivalence study referred to in Schedule Y, along with the application for grant of a licence of oral dosage form of drugs specified under category II and category IV of the bio-pharmaceutical classification system."

12. It is on such premise, we are required to consider as to what was the nature of the show cause notice as issued to the petitioner. The show cause notice clearly reveals in paragraph 1 that it is in respect of the said sample which was manufactured by Kamla under the agreement as entered between the petitioner and Kamla and which Kamla was authorised to manufacture under its license granted to it by respondent no. 2 in Form

28. The show cause notice clearly alleges breach of Rules 78(c)(i), 78(e) and 78(p) read with schedule 'M'. Schedule 'M' clearly refers to the applicability of Rules 71, 74, 76 and 78 and not Rule 78-A in regard to which the petitioner is concerned and which would be attributed to the petitioner.

13. Thus, on such premise, when the allegations against the petitioner are in regard to breach of Rule 78, certainly there is substance in the contention of Mr. Ponda that the provision itself was not applicable insofar as the petitioner is concerned, when admittedly the petitioner was holding the license in Form 28-A and what was attributed to the petitioner was the conditions of license under Rule 78-A. Thus, insofar as the petitioner is concerned, respondents proceeded without jurisdiction by applying the Rajesh Chittewan, PS Page 12 of 14 ::: Uploaded on - 01/04/2025 ::: Downloaded on - 01/04/2025 22:19:43 :::

6. WP 6054-2023-CIPLA.doc provisions which are per se not applicable to the license as granted to the petitioner dated 28 July 2020 in Form 28-A. The impugned order dated 17 March 2022 would be required to be interfered on this count alone.

14. The jurisdictional defect however appears to have been not noticed by the Appellate Authority in passing the impugned order dated 23 March 2023, having proceeded on the footing that a breach of Rule 78-A would be relevant insofar as the petitioner's license granted under Form 28-A is concerned. We find that both the Authorities have not applied their mind to the contention that it is only in case of breach of conditions in Rule 78- A, any action could be taken against the petitioner. In the show cause notice in question any breach of Rule 78-A was not invoked and for such reason, the appellate order would be also required to be held to be an order replete with a jurisdictional defect and/or rather it confirms the illegalities which were inherent in the order passed by the Licensing Authority dated 17 March 2022.

15. This apart, we find that admittedly the manufacturer of the seized drug sample was Kamla. Kamla has succeeded in its appeal and if this be so, we do not find any rationale in the Appellate Authority taking a different view insofar as the petitioner was concerned and more particularly on the premise that any breach would be required to be attributed to the petitioner of the licensing conditions, as contained in the agreement dated 13 August 2020 entered between the petitioner and Rajesh Chittewan, PS Page 13 of 14 ::: Uploaded on - 01/04/2025 ::: Downloaded on - 01/04/2025 22:19:43 :::

6. WP 6054-2023-CIPLA.doc Kamla. Once the categories of license are defined which are compartmentalized, and the obligations of the respective licenses are different, there could not have been any vicarious liability on the petitioner even under the agreement as entered between the petitioner and Kamla. Thus, even on such count, we do not find that the respondent Authorities were correct in their approach in passing the impugned orders.

16. In the light of above discussion, we are of the clear opinion that the impugned orders cannot be sustained and they do not satisfy the test of law as discussed by us. The petition needs to succeed. It is accordingly allowed in the following terms:-

ORDER i. The impugned suspension order dated 17 March 2022, the appellate order dated 23 March 2023 and the consequential order dated 13 April 2023 passed by respondent no. 3 are quashed and set aside.

                             ii.      Rule is made absolute in the aforesaid terms.
                             iii.     No costs.


                  [ADVAIT M. SETHNA, J.]                           [G. S. KULKARNI, J.]




Rajesh Chittewan, PS                                                                             Page 14 of 14




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