Drug overcharging case: Drug industry, failing to extend effective cooperation, cannot blame the Central Government for taking a decision without necessary information and data

Supreme Court

Supreme Court: Stating that fixing the price of any commodity is not only difficult but also tricky, the Court held that the notification dated 13th July, 1999 issued by the Central Government under Paragraph 7 of the Drugs (Prices Control) Order, 1995 prescribing the norms for conversion cost, packing charges and process loss of raw materials (other than packing materials in conversion) and packing and process loss of packing materials in packaging is valid as it was issued after due application of mind.

The Bench of Madan B. Lokur and R.K. Agrawal, JJ said that there is material to be considered, a bundle of factors to be considered and appropriate weight is to be given to the material and the factors. This is not easy to decide and there will always be some criticism with regard to either the material utilized or the factors considered or the weight attached to the materials and factors. In matters pertaining to drug formulations, it is not only an issue of demand and supply but also the ability of a common person to afford the formulation. At the same time, the manufacturer must also make some profit and be in a position to invest in research and development. There simply cannot be any mathematical precision in fixing the price of a commodity.

The Court said that it is true, as contended by Cipla, that no manufacturer/formulator is under an obligation to furnish whatever information is required by the Central Government including information that might be confidential but that does not mean that absolutely no information should be supplied by any company or incomplete information should be supplied by a very few of them. It would certainly be more appropriate for each company to have responded to the questionnaires sent with a communication that some particular information is not being furnished for reasons of confidentiality. The Court noticed that given the non-cooperative attitude of the drug industry, the Central Government prescribed the norms and Cipla and the drug industry were obliged to accept them as notified without much ado. It cannot be that the drug industry does not supply necessary information and data to the expert Committees appointed by the Central Government and then blames the Central Government for taking a decision without necessary information and data. Noticing that there have been earlier instances of non-cooperation by the drug industry, the Court said that the failure of the drug industry to extend effective cooperation an endemic problem.

The Court also held the notifications issued by the Central Government fixing the retail price or ceiling price of formulations under Paragraphs 8 and 9 (as the case may be) of the Drugs (Prices Control) Order, 1995 without determining the norm for cost of packing material as required by Paragraph 7 of the Drugs (Prices Control) Order, 1995 are valid in law and the fixing of retail price of a formulation under Paragraph 8 of the Drugs (Prices Control) Order, 1995 without first fixing the sale price of a bulk drug under Paragraph 3 of the Drugs (Prices Control) Order, 1995 utilized in the manufacture of a formulation, to be valid in law.

With regard to the manner in which the Union of India has handled the litigation as very little or scanty material was placed by the Union of India before the concerned High Courts, particularly the Allahabad High Court, the Court said that such practice deserves discouragement as it tends to degrade the importance of proceedings in the High Court and could subsequently embarrass the High Court which might inadvertently base its decision on insufficient material resulting in the possibility of an incorrect decision which is liable to be set aside and it might also cause serious prejudice to a litigant.

The Court also said that in matters where public interest is involved, the Court ought to be circumspect in granting any interim relief. The consequence of an interim order might be quite serious to society and consumers and might cause damage to public interest and have a long term impact. [Union of India v. Cipla Ltd., 2016 SCC OnLine SC 1159 , decided on 21.10.2016]

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