Supreme Court Upholds Drug Price Control: T.C. Healthcare vs. Union of India (2019)

Introduction

Date of the Judgment: 15 November 2019

Citation: [Not Available in Source]

Judges: Arun Mishra, J., Vineet Saran, J., S. Ravindra Bhat, J.

Can the government impose price controls on pharmaceutical companies that use advanced drug delivery technologies, like sustained-release, even if the regulations don’t specifically address those technologies? The Supreme Court of India recently addressed this question in a case involving two pharmaceutical companies that challenged the government’s decision to fix the price of their drug formulations.

The core issue was whether the government could fix the price of drug formulations using sustained or continuous release technology under the Drugs (Price Control) Order, 1995 (DPCO), despite the absence of explicit price norms for such technologies. The Court had to determine whether the price fixation was valid, even if the specific technologies used by the companies were not explicitly mentioned in the DPCO.

The judgment was delivered by a three-judge bench comprising Justices Arun Mishra, Vineet Saran, and S. Ravindra Bhat, with Justice S. Ravindra Bhat authoring the opinion.

Case Background

M/S T.C. Healthcare P. Ltd. (TCH) and Modi Mundipharma Pvt. Ltd. (Modi) were pharmaceutical companies manufacturing various drug formulations. Both companies were initially exempt from price controls under the Drugs (Price Control) Order, 1995 (DPCO) because they were registered as small-scale units (SSU). TCH produced Diucontin K, a formulation derived from the bulk drug Frusemide, while Modi manufactured Unicontin, derived from Theophylline.

The Central Government issued notifications on 11th July, 2006, and 30th April, 2009, imposing ceiling prices on formulations containing Theophylline and Frusemide, respectively. Modi’s Unicontin (400 mg and 600 mg tablets) was affected by the 2006 notification, and TCH’s Diucontin K was affected by the 2009 notification. Both companies challenged these notifications, arguing that the price fixation was arbitrary and did not consider their use of sustained-release technology.

TCH’s writ petition challenged the notification dated 30th April, 2009, which fixed the ceiling price of formulations containing Frusemide and Potassium. Modi challenged the notification dated 11th July, 2006, which fixed the ceiling price for formulations containing Theophylline. Both companies sought to quash the notifications and the subsequent demands for payment based on the fixed prices.

Timeline

Course of Proceedings

The appellants, TCH and Modi, initially approached the Allahabad High Court challenging the notifications issued by the Central Government. They argued that the price fixation was arbitrary and did not consider the cost and efficiency of major manufacturers. They also contended that the notifications were ultra vires of Para 7 of the DPCO, as there were no specific price norms for formulations using sustained-release technology.

The High Court rejected the appellants’ arguments, holding that the Central Government had followed due process in fixing the prices. The High Court relied on the fact that the government had issued questionnaires to numerous pharmaceutical producers and had considered the data received. The High Court also noted that the DPCO did contemplate sustained-release technologies, and the appellants had not approached the National Pharmaceutical Pricing Authority (NPPA) for specific price approvals.

The High Court relied on the judgment of the Supreme Court in Union of India v. Cynamide India Ltd. (1987) 2 SCC 720, to the effect that price fixation is essentially a legislative exercise.

Legal Framework

The case revolves around the interpretation and application of the Drugs (Price Control) Order, 1995 (DPCO). The DPCO provides the framework for the government to regulate the prices of drugs in India. Key provisions include:

• Para 2(v) defines “Scheduled formulation” as a formulation containing any bulk drug specified in the First Schedule, either individually or in combination with other drugs, except single-ingredient formulations sold under a generic name.
• Para 7 of the DPCO, 1995, outlines the formula for calculating the retail price of a formulation:

  R.P. = (M.C. + C.C. + P.M. + P.C.) x (1 + MAPE/100) + E.D.

  • “R.P.” means retail price.
  • “M.C.” means material cost.
  • “C.C” means conversion cost.
  • “P.M.” means the cost of packing material.
  • “P.C.” means packing charges.
  • “MAPE” means Maximum Allowable Post Manufacturing Expenses.
  • “E.D.” means excise duty.
• Para 8(4) states that any manufacturer who desires a revision of the retail price of a formulation fixed under sub-paragraph (1), shall make an application to the Government in Form III or Form IV.
• Para 8(6) states that no manufacturer shall market a new pack or a new formulation without obtaining prior approval of its price from the Government.
• Para 9(1) empowers the government to fix the ceiling price of a Scheduled formulation, keeping in view the cost or efficiency, or both, of major manufacturers of such formulations.
• Para 9(2) allows the government to revise the ceiling price of a Scheduled formulation.
• Para 13 provides the government with the power to recover overcharged amounts.

These provisions provide the government with the necessary authority to regulate drug prices, ensuring they are affordable and accessible to the public.

Arguments

The appellants, TCH and Modi, made the following submissions:

• The price fixation exercise was arbitrary and the result of non-application of mind. The notifications overlooked the cost and efficiency of major manufacturers.

• 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 sustained-release technology or method in the final product for effective dose delivery.

• The respondents had no figures or details with respect to the cost or efficiency of major manufacturers and were thus obligated to call for such particulars.

• There were no norms in respect of the continuous release technology used for effective and efficacious drug delivery.

The respondents, the Union of India, argued:

• The government had followed the due process of law in fixing the prices. They had designed questionnaires to elicit cost information and had considered the data provided by pharmaceutical manufacturers.

• The DPCO did not exclude sustained-release or continuous-release technologies from price control. The notifications issued by the government were valid and applicable to all formulations, including those using advanced drug delivery systems.

• The appellants did not approach the NPPA for specific price approvals for their formulations, despite the availability of such a mechanism.

The innovativeness of the argument by the appellants was that they highlighted the absence of specific norms for sustained-release technologies in the DPCO, arguing that this omission rendered the price fixation invalid for their products. This argument was innovative as it sought to create an exception to the general price control regime based on the technological features of their formulations.

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. Whether the “sustained release” and “continuous release” technologies used in the appellants’ products had not been made the subject of any price fixation norm, and therefore, the price fixation resorted to in their case was contrary to law.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• Union of India v. Cynamide India Ltd. (1987) 2 SCC 720*: The Court relied on this case to support the view that price fixation is essentially a legislative exercise, thus upholding the government’s authority to fix prices.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The Court emphasized that the DPCO was aware of different drug delivery systems, including sustained release.
• The Court noted that the appellants did not demonstrate that their systems were unique or different.
• The Court highlighted that the appellants had not sought specific price approvals from the NPPA.
• The Court relied on the notification dated 13th August, 2008, which fixed conversion costs for various types of tablets, including sustained-release tablets.
• The Court also considered Note (d) to the notification of 30th April, 2009, which stated that ceiling prices would apply to different drug delivery systems unless companies sought specific price approvals.

Fact:Law Ratio

The Court’s reasoning was primarily based on the legal framework of the DPCO and the actions of the appellants. The factual aspects of the case, such as the specific technologies used by the appellants, were considered but were not the primary drivers of the decision. The court emphasized the legal requirement for manufacturers to follow the pricing norms and seek specific approvals if they claimed unique features.

The Court considered the appellants’ arguments about the absence of specific norms for sustained-release technology but rejected them because the DPCO did not exclude such technologies and the appellants had not sought specific approvals. The Court also relied on the existing notifications that included sustained-release tablets within their ambit. The Court’s decision was based on the principle that unless specifically excluded or granted an exception, all drug formulations are subject to price control under the DPCO.

The Court quoted the following from the judgment:

“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.”

“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.”

Key Takeaways

• The Supreme Court upheld the government’s authority to fix prices for all drug formulations, including those using sustained-release or continuous-release technologies.

• Pharmaceutical companies must adhere to the pricing norms and ceiling prices fixed by the government unless they can demonstrate that their products have unique features and seek specific price approvals.

• The Drugs (Price Control) Order, 1995, applies to all drug formulations unless specifically excluded or granted an exception.

• The judgment clarifies that the DPCO is aware of different drug delivery systems and that unless a company seeks specific approval, the general pricing norms apply.

The judgment has significant implications for pharmaceutical companies, particularly those using advanced drug delivery technologies. It reinforces the government’s authority to regulate drug prices and ensures that all formulations are subject to price control unless specific exceptions are granted. This decision may encourage companies to seek specific price approvals if they believe their products warrant differential pricing due to unique features.

Directions

No specific directions were given by the Supreme Court.

Specific Amendments Analysis

There is no discussion about any specific amendment in the judgment.

Development of Law

The ratio decidendi of this case is that the Drugs (Price Control) Order, 1995 (DPCO) applies to all drug formulations, including those using sustained-release or continuous-release technologies, unless a specific exception is made or a specific price approval is granted. The Supreme Court upheld the High Court’s decision, reinforcing the government’s authority to regulate drug prices and ensuring that all formulations are subject to price control unless specific exceptions are granted. There is no change in the previous position of law.

Conclusion

The Supreme Court dismissed the appeals, upholding the decision of the Allahabad High Court. The Court held that the price fixation by the government was valid and that the DPCO applied to all drug formulations, including those using sustained-release or continuous-release technologies. The Court emphasized that pharmaceutical companies must follow the pricing norms and seek specific approvals if they believe their products warrant differential pricing. This judgment reinforces the government’s authority to regulate drug prices and ensures that all formulations are subject to price control unless specific exceptions are granted.

Category

• Drug Price Control
  • Drugs (Price Control) Order, 1995
  • Price Fixation
  • Sustained Release Technology
  • Continuous Release Technology
  • Pharmaceutical Pricing
  • National Pharmaceutical Pricing Authority (NPPA)
• Drugs (Price Control) Order, 1995
  • Para 2(v), Drugs (Price Control) Order, 1995
  • Para 7, Drugs (Price Control) Order, 1995
  • Para 8(4), Drugs (Price Control) Order, 1995
  • Para 8(6), Drugs (Price Control) Order, 1995
  • Para 9(1), Drugs (Price Control) Order, 1995
  • Para 9(2), Drugs (Price Control) Order, 1995
  • Para 13, Drugs (Price Control) Order, 1995

FAQ

Q: What was the main issue in the T.C. Healthcare case?

A: The main issue was whether the government could fix the price of drug formulations using sustained-release technology under the Drugs (Price Control) Order, 1995 (DPCO), even if the DPCO did not explicitly mention price norms for such technologies.

Q: What did the Supreme Court decide?

A: The Supreme Court decided that the government could fix prices for all drug formulations, including those using sustained-release technology, and that companies must seek specific approvals if they believe their products warrant different pricing.

Q: What does this mean for pharmaceutical companies?

A: Pharmaceutical companies must adhere to the government’s pricing norms unless they can demonstrate that their products have unique features and seek specific price approvals from the National Pharmaceutical Pricing Authority (NPPA).

Q: What is sustained-release technology?

A: Sustained-release technology is a method of drug delivery where the drug is released slowly over a period of time, which can reduce the frequency of dosing.

Q: Did the Supreme Court introduce any new legal principles?

A: No, the Supreme Court did not introduce any new legal principles. It upheld the existing legal framework of the DPCO and emphasized that all drug formulations are subject to price control unless specifically excluded or granted an exception.