Case: M/S T.C.HEALTHCARE P. LTD Vs. UNION OF INDIA

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 2 nd March, 1995, the appellants were exempted from the regime of price fixation, under the Drugs (Price Control) Order, 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 Central Government may fix or revise the price of the formulation3. TCH, at the relevant time, was manufacturing several drug 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 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 11 th July, 2006. Initially, Modi filed an injunction suit; however, that was dismissed for non-prosecution. Upon receiving demand notices, it sought for quashing of the said notification (dated 11 th July, 2006) and the consequent notifications/ demands, in writ proceedings before the Allahabad High Court. Similarly, TCHs writ petition challenged the notification dated 30 th April, 2009, whereby the ceiling price of formulations containing Frusemide and Potassium were fixed; it also questioned the consequent demands by the Central Government4. 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. 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 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 delivery5. In the impugned judgment, the High Court negatived the 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 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 pharmaceutical manufacturers and companies, and was considered. The norms were notified on 13 th August, 2008. In that, the conversion cost, packing charges, process loss of raw materials and other norms were fixed6. The High Court refuted the charge by the appellants that the 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 through the products could not be subjected to price fixation as those methods or technologies were not contemplated by the DPCO, 1995.

Reasoning:
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 fixed for controlled release system, or the continuous release systems, anytime11. 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 allTherefore, the materials on the record show that the DPCO was aware of the 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 impugned notifications. This court, therefore, sees no reason to differ from the conclusions and findings of the High Court.