Last Updated on September 26, 2022 by The Health Master
The Delhi High Court has quashed four demand notices raised by the National Pharmaceutical Pricing Authority (NPPA) against Bharat Serums and Vaccines Ltd and medical device manufacturer Bard Healthcare India Pvt Ltd for overcharging on non-scheduled drugs and medical devices, finding the move unjustifiable as it does not allow rounding off principle to non-scheduled formulations while allowing it for scheduled formulations.
Two demand notices issued by the NPPA hold the companies guilty of overcharging and thus liable to deposit the overcharged amount together with interest.
Bharat Serum
Bharat Serum was served demand notices on June 26 and July 5, 2018, related to non-scheduled formulations named Histoglob and U-Tryp.
Bard Healthcare
Bard Healthcare India Pvt Ltd has challenged identical demand noticed dated November 7 and October 22, 2020, in respect of 82 medical devices which were produced and distributed by the company. The Authority raised the demand to the tune of around Rs. 6 crores to each company for overcharging.
Both the companies moved the High Court seeking remedy, and the Court, in an order on September 22, Justice Yashwant Varma said that the Court finds no justification in the stand taken by NPPA that while it would be open for a manufacturer of a scheduled formulation to round off the price of its products, that benefit should be denied to manufacturers of non-scheduled formulations.
Once the NPPA had arrived at the conclusion that rounding off was a well-accepted mathematical principle, the Court found no justification to discriminate between scheduled and non-scheduled formulations.
“Depriving manufacturers of non-scheduled formulations of the facility of rounding off, which is otherwise and generally accepted by the NPPA itself as a well-recognized mathematical practice, would be manifestly arbitrary.”
The respondents (NPPA) have failed to point out any justifiable or rationale basis on account of which the principle of rounding off would not apply to non-scheduled formulations,” said the order.
The Court has borne in mind that, insofar as non-scheduled formulations are concerned, the NPPA only exercises the power to monitor their prices.
Having freed this category of manufacturers from the rigors of price control, there appears to be no justification to restrict the applicability of the rounding-off principle to scheduled formulations only.
“Accordingly, and for all the aforesaid reasons, the writ petitions shall be allowed.”
“The impugned orders dated 05 July 2018 and 26 June 2018 pertaining to Bharat Serums and the order dated 22 October 2020 as well as the demand notice dated 07 November 2019 relating to Bard shall stand quashed,” concluded the order.
“The NPPA shall consequently undertake a fresh exercise of re-computation of the amounts, if any, payable by the petitioners, bearing in mind the conclusions recorded hereinabove.”
“While computing the ultimate liability of the individual petitioners, NPPA shall also take into consideration any deposits that may have been made by the petitioners during the pendency of the present litigation and pursuant to the orders which are impugned in the present writ petitions,” it added.
It observed that Bharat Serums has, in terms of the data placed on the record, clearly established that it has been held to have overcharged merely because it had rounded off the price of its drugs.
This is evident from the disclosures made by the said petitioner where the price of Rs. 90.75 was rounded off to Rs. 91 and Rs. 109.808 was rounded off to Rs. 110.
The Court said that it also cannot lose sight of the practical difficulties that may accompany the price of a drug being fixed at Rs. 99.825, Rs. 109.808, Rs. 2,698.30, Rs. 2,968.13 or Rs. 3,591.43. The fixation on such prices would lead to serious impracticalities when evaluated from a consumer‘s point of view.
“It becomes pertinent to observe that it is not the case of the respondent that the aforesaid action of Bharat Serums was actuated by malafides.”
The issue ultimately boils down to whether the respondents would be justified in taking the position that the principle of rounding off can only apply to scheduled formulations,” said the order.
As far as Bharat Serums is concerned, the NPPA has held it to be in violation of Para 20 with respect to the sale and distribution of Histoglob for a period from February 2014 to July 2018.
The allegation of overcharging in respect of U-Tryp covers the period from May 2015 to July 2018. As far as Bard is concerned, the NPPA alleged that the medical devices were overcharged during the period from January 2015 to January 2018.
Para 20 of DPCO 2013
Para 20 of the Drugs (Price Control) Order, 2013, about monitoring the prices of non-scheduled formulations, states that the government shall monitor the maximum retail prices (MRP) of all drugs, including the non-scheduled formulations, and ensure that no manufacturer increases the maximum retail price of a drug more than ten percent of maximum retail price during preceding twelve months and where the increase is beyond ten percent of the maximum retail price, it shall reduce the same to the level of ten percent of the maximum retail price for next twelve months.
The manufacturer shall be liable to deposit the overcharged amount along with interest thereon from the date of increase in price in addition to the penalty.
Bharat Serum said that it had not overcharged the prices of the two non-scheduled drugs, but merely rounded off the price of its drug.
Bard said that the overcharging of medical devices occurred on account of a lack of clarity in respect of the format in which price disclosures were to be made and that the overcharging was neither deliberate nor intentional.
Both companies challenged the NPPA’s interpretation of Para 20.
While dealing with the issue of overcharging, the NPPA took the position that once a manufacturer is found to have violated the restrictions placed in Para 20, it would become disentitled to claim the 10% annual increase till such time that the manufacturer reduces the MRP of the non-scheduled formulation to bring it within the band of the permissible MRP and holds the same for the next twelve months.
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