Under DPCO 1995, the Government could fix ceiling prices for scheduled formulations through notifications. A September 1997 notification authorised NPPA to exercise specified pricing functions under the Order. NPPA subsequently issued a notification on 27 September 2007 fixing ceiling prices for specified multivitamin and mineral tablets and capsules.

On 30 January 2009, NPPA issued a further notification stating that a formulation not covered by its existing pricing tables would be subject to a ceiling price specified in a relevant notification if it contained any scheduled drug as an ingredient, unless its manufacturer subsequently obtained a specific price for that formulation. Pharmed challenged the application of both notifications to Cartigen Forte.

After seeking production details from Pharmed’s contract manufacturer, NPPA issued a show-cause notice on 13 October 2010, proposing recovery of an estimated Rs 10,97,86,227 for alleged overcharging. Pharmed replied on 31 January 2011, disputing the application of the multivitamin ceiling price and requesting a personal hearing. NPPA held a hearing in September 2014, but later issued a demand notice for Rs 11,42,82,631. A recovery notice received by Pharmed in July 2015 sought Rs 12,05,92,401 and warned of attachment proceedings if payment was not made within 20 days.

Pharmed first challenged the demands in Writ Petition No. 2804 of 2015. On 3 February 2016, the High Court disposed of that petition after NPPA stated that it would hear the company again and pass a reasoned order. The Court also made clear that the demand notices challenged in that petition could not be enforced following the remand.

NPPA held another hearing on 1 March 2016. It then issued a demand dated 7 March 2016 for Rs 12,73,36,583, comprising alleged overcharging and interest calculated up to 15 March 2016. A further demand dated 12 May 2016 sought Rs 12,93,41,609. On 21 November 2016, the Collector’s office, acting through the Tehsildar under Section 267 of the Maharashtra Land Revenue Code, 1966, issued a recovery notice for Rs 13,41,06,802.

Pharmed filed the present petition in December 2016. On 5 December 2016, the High Court restrained the Tehsildar from taking further steps on the challenged demand, subject to Pharmed not creating third-party rights in, or parting with possession of, its immovable properties. That protection continued while the petition was heard.

Senior advocate Mr. Navroz Seervai, appearing for Pharmed and its co-petitioner, argued that the 27 September 2007 notification priced specified multivitamin and mineral products, whereas Cartigen Forte was an osteoarthritis formulation with different principal ingredients. Before January 2010, Cartigen Forte contained vitamin C and vitamin E in quantities lower than those identified in the pricing notification. From January 2010, according to the composition recorded in the judgment, those vitamins were no longer listed as ingredients. Pharmed maintained that neither version of Cartigen Forte had been assigned its own ceiling price.

The petitioners argued that the 30 January 2009 notification went beyond DPCO 1995 by applying existing ceiling prices broadly to other formulations containing a scheduled ingredient. They submitted that paragraphs 7 and 9 required the authorities to calculate a ceiling price using the prescribed formula, which takes account of material cost, conversion cost, packing material, packing charges, maximum allowable post-manufacturing expenses and excise duty, and then notify that price. In their submission, NPPA could not bypass that process by treating Cartigen Forte as covered by a price calculated for a different product.

Pharmed also alleged defects in the recovery proceedings. It said NPPA had not adequately addressed its submissions or passed the reasoned order contemplated when the earlier case was remanded. It challenged the Collector’s recovery action and disputed the calculation of interest over periods of delay that it attributed to NPPA. The petitioners additionally raised arguments concerning a small-scale industrial unit exemption and trade margin.

Senior advocate Mr. R. V. Govilkar, appearing for the Union of India and the NPPA respondents, argued that a formulation containing a bulk drug listed in the First Schedule to DPCO 1995 was a scheduled formulation, even when that ingredient appeared alongside other drugs. On that basis, the respondents defended the application of the notifications to Cartigen Forte and maintained that recovery of the alleged overcharge was justified.

The respondents also argued that Pharmed had not applied for price fixation. They submitted that DPCO 1995 permitted NPPA to fix a price on the information available to it when a manufacturer failed to provide the required application or information. They maintained that Pharmed had been given an adequate hearing after the earlier remand.

For the State respondent, Assistant Government Pleader Ms. Anupamaa Pawar argued that the Collector’s notice was a consequential recovery step based on NPPA’s demands and should therefore stand.

The Court accepted one part of the respondents’ interpretation: because Cartigen Forte contained vitamin C and vitamin E before January 2010, it could fall within DPCO 1995’s definition of a scheduled formulation. The authorities also had power to fix a price using available information if a manufacturer failed to furnish what the Order required. But those points did not, the Bench held, establish that a ceiling price had actually been fixed for Cartigen Forte.

For a ceiling price to apply, the Court said, the authorities still had to follow the mechanism in paragraph 9 read with paragraph 7 of DPCO 1995: calculate a price for the formulation using the prescribed cost formula and issue the required notification. The Bench found that no such exercise had been undertaken for Cartigen Forte.

The 2007 notification specified prices for multivitamin and mineral tablets and capsules. The Court agreed that Cartigen Forte was neither of those formulations. It noted that its principal ingredients were Glucosamine Sulfate Potassium Chloride, Chondroitin Sulfate Sodium and Methyl Sulfonyl Methane. The Bench also found no satisfactory explanation for taking the price associated with vitamin C or vitamin E in the notified multivitamin products and applying it to Cartigen Forte. Doing so would make the prescribed pricing formula unworkable.

The Court found the 2009 notification broader still. By treating a ceiling price for a scheduled ingredient as applicable to another formulation without calculating a price for that formulation, it effectively dispensed with the process required by DPCO 1995. The Bench held the notification to be ultra vires DPCO 1995 and beyond NPPA’s power in that form.

Those findings removed the basis for NPPA’s overcharging demands and the Collector’s consequential recovery action. The Court also found substance in Pharmed’s objection to interest being calculated across delays attributable to NPPA. It did not need to decide the remaining allegations about the hearing after remand or the claimed small-scale industrial unit exemption, because its findings on the two notifications were sufficient to dispose of the petition.

The Bench allowed the petition in terms of prayer clauses (a) to (e). It limited the effect of its ruling on the 27 September 2007 notification to that notification’s application to Pharmed’s formulation, while quashing the 30 January 2009 notification altogether. It further directed that the respondents must not act on the challenged demand notices. The judgment sets no new payment deadline.

The precise operative ruling is

“In view of the above, the writ petition is allowed in terms of prayer clauses (a), (b), (c), (d) and (e).

It is made clear that impugned notification dated 27.09.2007 is quashed to the extent of its applicability to the subject formulation of the petitioners, while impugned notification dated 30.01.2009 is quashed and set aside in its entirety.

As a consequence of the writ petition being allowed in terms of prayer clauses (a) to (e), the respondents shall not act upon the impugned demand notices against the petitioners.”

To view the official order, click the link below: