M/S T.C. HEALTHCARE P. LTD. & ANR.versusUNION OF INDIA & ANR.

618                       [2019]
               SUPREME COURT     14 S.C.R. 618
                              REPORTS                     [2019] 14 S.C.R.


A                 M/S T.C. HEALTHCARE P. LTD. & ANR.
                                       v.
                          UNION OF INDIA & ANR.
                        (Civil Appeal No. 4687 of 2010)
B                            NOVEMBER 15, 2019
                 [ARUN MISHRA, VINEET SARAN AND
                      S. RAVINDRA BHAT, JJ.]
             Drugs (Price Control) Order, 1995: Paras 3, 7, 8 and 9
C     Fixation of ceiling price of drug, Scheduled formulations –
      Notifications dated 11th July, 2006 and 30 th April, 2009 imposing
      ceiling prices on a drug formulation, Frusemide, Potassium and
      Theophylline – Challenged to, by the drug manufacturers as ultra
      vires Para 7 of the DPCO – High Court dismissed the writ petitions
      – Interference with – Held: Not called for – Modifications in drug
D     release are often desirable to increase the stability, safety and
      efficacy of the drug, to improve the therapeutic outcome of the drug
      treatment and/or to increase patient compliance and convenience
      of administration – Use of the term “sustained release” denotes
      the systems that maintain the rate of drug release over a sustained
E     period – Controlled release systems are drug delivery systems in
      which the drug is released in a predetermined pattern over a fixed
      period of time – Materials on the record show that the DPCO was
      aware of the existence of different systems of drug delivery and
      of sustained release – Manufacturers ought to have demonstrated
      that the systems used by them were unique or different – In absence
F     thereof, they were obliged to follow the pricing norms and ceiling
      prices fixed by the impugned notifications.
            Dismissing the appeals, the Court
            HELD: 1.1 The High Court, took note of the notification
      dated 13th August, 2008, which fixed conversion costs for plain
G
      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
H     systems, anytime. In these circumstances, it was held that the
                                       618
           M/S T.C. HEALTHCARE P. LTD. & ANR. v.                       619
                  UNION OF INDIA & ANR.

pricing norms were applicable. Note (d) to the notification of 30th    A
April, 2009, stated that 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 shall be
applicable unless the companies approach NPPA for specific price
approvals for its formulations”. In the instant case, the appellants
                                                                       B
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. [Para 10, 11] [626-C-G]                 C
      1.2 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 and/or to increase patient compliance and convenience        D
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
                                                                       E
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.
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 matrix in which the drug is           F
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
                                                                       G
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 not in any way affect their obligation to follow the
pricing norms and ceiling prices fixed by the impugned
notifications. Therefore, there is no reason to differ from the        H
620            SUPREME COURT REPORTS                       [2019] 14 S.C.R.


A     conclusions and findings of the High Court. [Para 12] [626-G-
      H; 627-A-D]
            Union of India v. Cynamide India Ltd. (1987) 2 SCC
            720 – referred to.
                              Case Law Reference
B
      (1987) 2 SCC 720                   referred to            Para 6
            CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4687
      of 2010.
            From the Judgment and Order dated 20.04.2010 of the High
C     Court of Judicature at Allahabad in Writ Petition No. 33753 of 2009.
            With
            C.A. No. 4679/2010 and 10687/2011.
            Maninder Singh, Sr. Adv., N.S. Ahluwalia, Salil Seth, Neeraj
D     Malik, Umesh Kumar Khaitan, Somiran Sharma, A.P. Mayee, Gurmeet
      Singh Makker, Advs. for the appearing parties.
            The Judgment of the Court was delivered by
            S. RAVINDRA BHAT, J.
E           1. This appeal by special leave questions a decision of the
      Allahabad High Court rejecting a writ petition. In those proceedings,
      the appellant had challenged the vires of notifications dated 11th July,
      2006 and 30th April, 2009, which imposed ceiling prices on a drug
      formulation, Frusemide.
F            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,
G     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
H     Central Government may fix or revise the price of the formulation.
         M/S T.C. HEALTHCARE P. LTD. & ANR. v.                               621
      UNION OF INDIA & ANR. [S. RAVINDRA BHAT, J.]

        3. TCH, at the relevant time, was manufacturing several drug         A
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 several
formulations, including Diucontin K (20mg and 40mg) prepared from            B
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 11th July, 2006.
Initially, Modi filed an injunction suit; however, that was dismissed for
non-prosecution. Upon receiving demand notices, it sought for quashing       C
of the said notification (dated 11th July, 2006) and the consequent
notifications/ demands, in writ proceedings before the Allahabad High
Court. Similarly, TCH’s writ petition challenged the notification dated
30th April, 2009, whereby the ceiling price of formulations containing
Frusemide and Potassium were fixed; it also questioned the consequent        D
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 non-application of mind. It was urged that the
notification overlooked the cost and efficiency of major manufacturers.      E
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                F
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              G
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         H
622             SUPREME COURT REPORTS                          [2019] 14 S.C.R.


A     norms, which were sent to 470 pharmaceutical producers across the
      country, covering a diverse 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
B     pharmaceutical manufacturers and companies, and was considered. The
      norms were notified on 13th 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
C     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
D     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
E           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
F           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
G           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.

H           “R.P.” means retail price.
   M/S T.C. HEALTHCARE P. LTD. & ANR. v.                          623
UNION OF INDIA & ANR. [S. RAVINDRA BHAT, J.]

“M.C.” means material cost and includes the cost of drugs         A
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         B
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,       C
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 by notification in the Official Gazette in      D
this behalf.
“MAPE” (Maximum Allowable Post Manufacturing
Expenses) means all costs incurred by a manufacturer from
the stage of ex-factory cost to retailing and includes trade
margin and margin for the manufacturer and it shall not           E
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         F
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.
Explanation—For the purpose of this proviso, “landed cost”        G
means the cost of import of 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:                                          H
624     SUPREME COURT REPORTS                      [2019] 14 S.C.R.


A     “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
B     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
C     such norms as may be specified 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
D     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.
E
      “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
F
      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 two months
      from the date of receipt of the complete information, fix a
G     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,
H     if not covered under sub-paragraph 3 of para 9, or a new
   M/S T.C. HEALTHCARE P. LTD. & ANR. v.                          625
UNION OF INDIA & ANR. [S. RAVINDRA BHAT, J.]

formulation or a new dosage form of his existing Scheduled        A
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
                                                                  B
     Government may, from time to time, by 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       C
     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            D
     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         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 such
     norms, as may be notified by the Government from time        F
     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.
                  **************                                  G
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     H
626             SUPREME COURT REPORTS                         [2019] 14 S.C.R.


A           Government under the 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
B     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.
C            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, 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
D
      fixed for controlled release system, or the continuous release systems,
      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 different drug
E
            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
F
      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.
G           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 and/or to increase
      patient compliance and convenience of administration. In that context,
H     the use of the term “sustained release” denotes the systems that
          M/S T.C. HEALTHCARE P. LTD. & ANR. v.                                627
       UNION OF INDIA & ANR. [S. RAVINDRA BHAT, J.]

maintain the rate of drug release over a sustained period. For example,        A
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. Sustained-release dosage forms
                                                                               B
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                    C
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 not in any way affect their
obligation to follow the pricing norms and ceiling prices fixed by the
                                                                               D
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.
                                                                               E
Nidhi Jain                                                Appeals dismissed.




                                                                               F




                                                                               G




                                                                               H