Profit Margin On COVID Rapid Test Kits On Higher Side : Delhi HC Fixes Price As ₹400 Per Kit, 40% Less Than ICMR Approved Rate [Read Order]

Observing that public interest must outweigh private gain, the Delhi High Court has capped the price of the Rapid Test Kits for COVID19 in a dispute between a distributor and an importer of the kits.

By noting that 61% profit mark up of such test kits is bit on a higher side, especially at these extraordinary times when economy has reached a standstill and a serious pandemic is upon us, the Single Bench of Justice Najmi Waziri reduced the price of the Rapid Test Kits from ₹600 per kit to ₹400.

The order stated :

"The Court is of the view that a profit mark-up of Rs. 155/- i.e 61% on the landed cost price of Rs. 245/- is much on the higher side and in any case more than sufficient for the seller, for the kits/tests to be made available in India for urgent extensive tests through the country, especially in these present extraordinary circumstances of the worldwide pandemic. The country is going through an unprecedented medical crisis affecting public order. People have been cloistered in their homes or constrained to stay wherever they were on 24th March 2020. The economy is virtually at a standstill for the last one month. There is an element of disquiet apropos one's safety. For people to be assured that the pandemic is under  control and for governments to ensure and for agencies engaged in the frontline battle to safeguard people's health, more kits/tests should be made available urgently at the lowest cost, for carrying out extensive tests throughout the country. Public interest must outweigh private gain. The lis between the parties should give way to the larger public good. In view of the above, the kits/test should be sold at a price not beyond Rs. 400/- per kit/test inclusive of GST"

The order was passed in a petition filed by Rare Metabolics, who had agreed to be the sole distributor of COVID-19 Rapid Test Kits imported by Matrix Labs (respondent) from China. There was a dispute regarding non-supply of the imported kits to the petitioner. The importer, Matrix Labs, insisted on upfront payment, whereas the petitioner maintained that the payment can be made only after release of funds by the ICMR.

The parties agreed to the selling of kits at Rs.400 per test, which is 40% less than the ICMR approved price of Rs.600 per test. The Court recording the concession made by the parties as follows :

"Mr. Jayant Mehta, the learned counsel for the petitioners, states upon instructions, that in the interest of the country he would not pursue the matter any further and would give up all further claims, in the case if the importer undertakes to sell the product at not more than Rs.400/- each, inclusive of GST. Indeed, both parties agree to the principle public interest should be paramount and the tests should be made available to the general public at the lowest cost possible. Mr Nagrath, the learned counsel for the respondent submits, that the respondent is ready to and undertakes to supply the kits/tests at Rs.400/- each, plus GST i.e. at 40% lesser than the ICMR approved rate, directly to any Government or its agency or private entity duly approved to carry out these tests"

On 25th March, the Petitioner had expressed a desire to get one million SARS COV-2 Antibody Test Kits from China, and the Respondent agreed to import the same. Subsequently, on 27-28th March, ICMR had placed an order for the supply of 5 lakh test kits from the Petitioner at a rate of ₹600/per kit.

Of the said order for 5 lakh tests kits, 2.76 lakh have already been delivered to ICMR and the remaining 2.24 lakh tests are expected to be delivered very shortly. It was informed to the court that the said consignment is likely to land in India in the next 24 hours, subject to prioritisation by the Government of India.

Therefore, the Petitioner moved the court seeking the release of remaining Rapid Test Kits and other COVID related materials by the Respondent, so that further supplies can be made to the ICMR as per the agreement.

The Petitioner argued that according to the bi-partite agreement the material cannot be distributed in India, except through Rare Metabolics, which has already paid Rs. 12.75 crores to the respondent and this amount covers the cost of import of 5 lakh tests at the rate of USD 3 per test and the freight cost.

On 17 April, a consignment of 2.76 lakh test kits was delivered to ICMR, the payment for which is still awaited. According to ICMR, such payments are to be paid after the tests after having met the requisite standards set by it.

It was the Petitioner's case that the moment payment is received, it will be immediately remitted to the Respondent. The latter, however, argued that the import was on the understanding between the parties that there would be 100% upfront payment, especially with regards to the consignment for ICMR.

The Respondent also informed the court that it had received an order for supply of 50,000 kits/tests, from the Tamil Nadu Government , through an intermediary dealer Shan Biotech and Diagnostics, at the ICMR approved rate of ₹600/- per test. Of this order, 24,000 has been supplied and 26,000 more are to be supplied.

Having regard to the pandemic situation, the Court passed the following directions in the facts of the case :

Having regard to the pandemic situation, the Court ordered :

a. 2.24 lakh tests shall be delivered to ICMR, the moment it lands into India

b. The total invoice value raised by the Respondent-importer upon Petitioner is a total of ₹21 crore. The Respondent has received ₹12.75 crores. The balance amount of ₹8.25 crores shall be first paid to the importer before any monies received from ICMR by Petitioner is adjusted for any other purpose. Such monies shall be paid to the respondent within 24 hours of it coming into the petitioner's bank account.

While understating the gravity of public interest involved in this case, the Respondent importer agreed to supply the kits/tests at ₹400/- each, plus GST i.e. at 40% lesser than the ICMR approved rate, directly to any Government or its agency or private entity duly approved to carry out these tests.

After talking such submissions on record, and the fact that the public interest has to prevail over private profit, the court directed that from the other 5 lakhs kits/tests, 50,000 shall be excluded for the State of Tamil Nadu and the remaining 450,000 would be available to the Respondent to be disposed-off in terms of the above, directly to any Government or governmental agency or any private entity which has received due approval to carry out such tests. 

Advocates Jayant Mehta & Anshumaan Sahni, appeared for the petitioner.

Advocates Amitabh Chaturvedi, Jeevesh Nagrath,  Sangeeth Mohan & Chandan Dutta appeared for the respondent.

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