Kerala HC Upholds Ban on Misleading Discount Boards at Pharmacies

The dispute arose from a Circular dated September 4, 2024, issued by the Office of the Drugs Controller. Through the circular, the Drugs Controller directed that applicants seeking grant or renewal of drug licences must submit an affidavit undertaking that they would not display discount boards at their pharmacies. The circular also required modification of the wording in the prescribed affidavit by replacing references to "misleading claims" with language relating to discount boards.

Two writ petitions were filed by pharmacy owners and medical shop operators challenging the circular and seeking its quashing. They also sought declarations that the Drugs Controller lacked authority to prevent pharmacies from displaying discount boards and that retailers were entitled to sell medicines below MRP and advertise such discounts. Meanwhile, a third petition was filed by a consumer seeking implementation of the circular, alleging that discount advertisements displayed by medical shops were misleading the public.

The petitioners argued that many pharmacies provide medicines at discounted prices by sacrificing part of their profit margins and maintain transparency by displaying booklets showing the medicines sold and the discounts offered. They contended that neither the Drugs and Cosmetics Act, 1940 nor the Drugs Rules, 1945, prohibits the sale of medicines below MRP or the public disclosure of discounts. According to them, the circular was therefore beyond the powers of the Drugs Controller and contrary to the statutory framework.

The petitioners further maintained that there was no statutory provision authorising the Drugs Controller to prohibit pharmacies from displaying discount boards. They argued that the circular imposed restrictions without legislative backing and therefore violated their legal and constitutional rights.

The Drugs Controller defended the circular, stating that the department is responsible for implementing the Drugs and Cosmetics Act, the Drugs and Magic Remedies (Objectionable Advertisements) Act, and the Drugs Price Control Order. The State submitted that its objective was to eliminate unhealthy practices in the pharmaceutical trade and protect consumers from deceptive advertising.

The authorities clarified that they were not opposed to pharmacies offering discounts. In fact, they acknowledged that discounts make medicines more affordable for the public. However, their concern was with exaggerated and misleading discount advertisements that claim discounts of up to 80% and attract customers through false representations. The State maintained that while retailers are free to sell medicines below MRP, they cannot mislead consumers through vague or exaggerated discount claims.

The State further contended that under the Drugs Price Control Order, retailers are required to display manufacturer-supplied price lists rather than generic discount boards. According to the authorities, some customers were being misled into believing they were receiving major discounts while ultimately paying close to the MRP. The circular was therefore intended as a practical reform measure to ensure transparency and prevent exploitation of consumers. The department also informed the Court that it had decided to rephrase the undertaking required from licensees and had not initiated any punitive action so far.

The Court held that regulatory authorities must act within the framework of law, but they also possess incidental powers necessary to effectively discharge their statutory functions. According to the Court, the licensing authority is entitled to impose conditions while granting or renewing licences if those conditions are intended to protect the public from misleading practices. Since discount advertisements have the potential to deceive customers, the authority was justified in requiring licensees to provide an undertaking against such conduct.

The Court further observed that constitutional freedoms and business rights cannot be used as shields for practices that may harm consumers. It emphasised that regulatory authorities are entitled to a degree of flexibility or "play in the joints" when framing measures to protect public interest. Judicial interference is unwarranted unless such regulatory directions severely curtail business rights without any corresponding public benefit. Considering the significant role played by the Drugs Controller in regulating drug licensing, the Court found no reason to interfere with the circular.

The Court also took note of the revised undertaking proposed by the department, which reads:

"We undertake that we shall not display any discount boards containing misleading or vague claims regarding the price of drugs"

According to the Court, this revised condition does not prejudice the rights of pharmacy owners and merely obliges them to avoid misleading consumers.