Case Note & Summary
The writ petition arose from a dispute concerning the drug price control regime under the Drugs (Price Control) Order, 1995 (DPCO 1995). The first petitioner, a small scale industrial unit manufacturing pharmaceutical products, produced a formulation known as Surfaz SN Cream (7 gms) containing Betamethasone, Neomycin Sulphate, Tolnaftate, Clotrimaxole, and Chlorocresol. The National Pharmaceutical Pricing Authority (NPPA) issued Notification No. S.O.1636(E) dated 27 September 2007 under paragraphs 9 and 11 of DPCO 1995, fixing the ceiling price for various ointments and creams. Item 8 of that notification described a Betamethasone combination ointment in a 7 gm tube with a ceiling price of Rs.6.68 and an equivalent MRP of Rs.7.71. The petitioners, who had manufactured the cream between 29 July 2006 and 5 October 2007, contended that the notification applied only to ointments and not to their cream formulation. NPPA by letter dated 9 April 2008 called upon the petitioners to explain non-compliance with the ceiling price. The petitioners replied on 28 April 2008 asserting that their product was a cream and thus not covered. NPPA rejected this contention on 11 June 2008, stating that cream was synonymous with ointment, and demanded quantitative information. Meanwhile, on 5 June 2008, NPPA issued another notification, S.O. 1371(E), specifically including cream formulations of the same composition in a 6 gm pack under price control. The petitioners thereafter stopped manufacturing the cream. On 12 June 2008, NPPA directed the Drug Controller to collate information regarding the petitioners' production. The petitioners reiterated their stand on 2 July 2008 that the earlier notification was inapplicable and that the subsequent notification brought their cream under control only prospectively. After further correspondence, NPPA passed an Order-cum-Demand dated 31 March 2015, directing the petitioner to deposit Rs.21,21,95,238/- (comprising principal of Rs.10,25,06,287/- for the period October 2007 to June 2008 and interest at 15% p.a. up to 15 April 2015 amounting to Rs.10,96,88,951/-) for overcharging in violation of DPCO 1995. Challenging this order and the 2007 notification, the petitioners filed Writ Petition No. 2880 of 2015 under Article 226 of the Constitution. Their primary grounds were: (a) the notification applied to ointment, not cream; (b) there was non-compliance of paragraphs 7 and 9 of DPCO 1995; (c) the petitioner being a small scale industry was exempt under DPCO 1995; and (d) interest could not be levied under Section 7A of the Essential Commodities Act, 1955 as there was no default. The matter was heard by a Division Bench, which reserved judgment on 29 August 2016 and pronounced it on 23 December 2016. The available text does not contain the court's reasoning or final decision.
Issue of Consideration
Whether the impugned notification and order-cum-demand were valid and applicable to the petitioner's formulation, and whether the petitioner was entitled to exemption as a small scale industry and relief from interest levy.
Law Points
- Drug Price Control Order 1995
- distinction between ointment and cream
- exemption for small scale industries under DPCO 1995
- interest under Section 7A of Essential Commodities Act 1955
- applicability of ceiling price notification to cream formulation
Case Details
2016 LawText (BOM) (12) 16
Writ Petition No. 2880 of 2015 with Writ Petition (L) No. 1119 of 2016, Writ Petition (L) No. 1120 of 2016, and Writ Petition No. 98 of 2014
S.C. Dharmadhikari, B.P. Colabalawla
Mr. Navroz Seervai, Mr. Shyam Mehta, Mr. Abhay Jadeja, Mr. Pradeep Mane, Ms. Shruti Katakey for petitioners; Mr. Anil Singh, Addl. Solicitor General, Dr. G.R. Sharma, Mr. D.P. Singh, Mr. Yash Momaya, Ms. Indrayani Deshmukh for respondents
M/s. Franco Indian Remedies Private Limited & Mr. Noel Amanna (WP 2880/2015); M/s. Franco Indian Pharmaceuticals Private Limited & Mr. Noel Amanna (WPL 1119/2016 & 1120/2016); Biochem Pharmaceutical Industries Ltd. & Mr. Sudhakar G. Chaudhary (WP 98/2014)
Union of India, Ministry of Chemicals & Fertilizers, and National Pharmaceutical Pricing Authority
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Nature of Litigation
Writ petition under Article 226 challenging a notification and order-cum-demand for overcharging of drug price under DPCO 1995.
Remedy Sought
Petitioners sought quashing of Notification No. S.O.1636(E) dated 27 September 2007 and Order-cum-Demand dated 31 March 2015, and a declaration that their cream formulation was not covered by the notification.
Filing Reason
NPPA demanded deposit of Rs.21.21 crores for overcharging, alleging violation of DPCO 1995; petitioners argued that their cream was not an ointment and hence not covered by the 2007 notification, and that they were a small scale industry exempt from price control.
Previous Decisions
No prior judicial decisions mentioned; only administrative correspondence between the parties.
Issues
Whether Notification No. S.O.1636(E) dated 27 September 2007 applied to the petitioner's cream formulation or only to ointments.
Whether there was non-compliance of paragraphs 7 and 9 of DPCO 1995 vitiating the impugned order.
Whether the petitioner being a small scale industry was exempt from the price control notification.
Whether interest could be levied on the demand under Section 7A of the Essential Commodities Act, 1955.
Submissions/Arguments
Petitioners: The 2007 notification covered only ointments, not creams, as evident from the words 'ointment' in Item 8 and the subsequent specific notification for creams on 5 June 2008; the company was a small scale industry exempt under DPCO 1995; there was non-compliance of paragraphs 7 and 9 of DPCO 1995; interest was not leviable as there was no default under Section 7A of Essential Commodities Act.
Respondents: Cream is synonymous with ointment and covered under the 2007 notification; the product fell within the same chemical composition; price control was justified to protect public interest.
Judgment Excerpts
This Petition is one more illustration of how the Pharma Companies continue to resist the Drug Price Control regime and make every attempt to frustrate and defeat it, thereby making it impossible for the common man to procure drugs so essential to fight diseases and illness.
By this Writ Petition, filed under Article 226 of the Constitution of India, the petitioners have challenged the Notification bearing No. S.O.1636(E) dated 27th September 2007...
The broad grounds ... are as follows: (a) The said Notification ... is inapplicable to the 1st petitioner company's formulation 'Surfaz Cream' as the same applies to an ointment and not a cream. (b) There is admitted non-compliance of paragraph 7 read with paragraph 9 of the DPCO 1995...
Procedural History
The first petitioner manufactured Surfaz SN Cream from 29 July 2006 to 5 October 2007. NPPA issued Notification S.O.1636(E) on 27 September 2007 fixing ceiling prices for certain ointments/creams. On 9 April 2008, NPPA sought explanation for non-compliance. Petitioners replied on 28 April 2008 asserting cream not covered. NPPA rejected this on 11 June 2008. Meanwhile, on 5 June 2008, NPPA issued another notification specifically for creams. Petitioners claimed this brought cream under control prospectively and stopped manufacturing. NPPA directed Drug Controller on 12 June 2008 to collate information. Petitioners reiterated their stand on 2 July 2008. On 31 March 2015, NPPA passed Order-cum-Demand for Rs.21.21 crores. Petitioners filed writ petition challenging the 2007 notification and 2015 order. The High Court reserved judgment on 29 August 2016 and pronounced it on 23 December 2016.
Acts & Sections
- Drugs (Price Control) Order, 1995: Paragraph 7, Paragraph 9, Paragraph 11
- Essential Commodities Act, 1955: Section 7A
- Constitution of India, 1950: Article 226
