Drugs (Price Control) Order | Supreme Court Upholds Rs 4.6 Crore Recovery Against Sun Pharma For Overpricing Medicine

The Supreme Court on Monday (July 15) observed that the purpose of Drugs (Price Control) Order, 1995 (DPCO) is to control prices of medicinal drugs for the common man, and it cannot be subjected to a narrow interpretation.

“The intent and purpose thereof are to control the prices at which medicinal drug formulations are made available to the common man by holding out the threat of recovery of the higher prices charged for such drug formulations by those involved in their manufacture and marketing. Given the laudable objective underlying the provision, it cannot be subjected to a restricted or hidebound interpretation”, the court held.

A bench of Justice Sanjay Kumar and Justice Augustine George Masih made these observations while upholding recovery demand issued by the National Pharmaceutical Pricing Authority (NPPA) against M/s. Sun Pharmaceutical Industries Ltd for selling overpriced drugs.

The court held that the fact that the appellant played the role of a dealer also would not save it from liability for overpricing the concerned drug formulation as a distributor.

“the fact remains that a 'distributor' under Paragraph 2(c) of the DPCO has links with the manufacturer directly while a 'dealer' does not, as he obtains his supply of drugs from the said 'distributor'. It is obvious that the definitions of 'distributor' and 'dealer' under the DPCO are not mutually exclusive and it is very much possible in this scheme that a 'distributor' may play a dual role by becoming a 'wholesaler' or 'retailer' also and thereby satisfy the definition of 'dealer' under Paragraph 2(d) of DPCO. That appears to be the case presently as the appellant played both roles. However, that would not be sufficient to exclude the appellant from the ambit of Paragraph 13 of the DPCO”, the court observed.

The appellant, M/S. Sun Pharmaceutical Industries Ltd., contested the demand notices issued by the NPPA dated February 8, 2005, and June 13, 2005, pertaining to the pricing of Roscilox, a Cloxacillin-based drug formulation. The NPPA had demanded payment of Rs. 2,15,62,077 as the principal amount for overcharging between April 1996 and July 2003, along with interest amounting to Rs. 2,49,46,256. The total demand stood at Rs. 4,65,08,333.

A single judge of the Delhi High Court dismissed the appellant's writ petition against the demand notices and a division bench of the High Court dismissed the appellant's challenge to the single judge decision. Therefore, the appellant approached the Supreme Court.

The issue before the Supreme Court was whether the NPPA was justified in issuing these demand notices under Paragraph 13 of the Drugs (Price Control) Order, 1995 (DPCO).

Paragraph 13 of the DPCO empowers the government to recover amounts from manufacturers, importers, or distributors who charge prices higher than those fixed by the government for drug formulations under DPCO 1987 or DPCO 1995.

The appellant argued that it did not fall under the purview of Paragraph 13 as it was neither a manufacturer, importer, nor distributor of the drug formulation in question. The appellant contended that its role was limited to that of a dealer.

The Supreme Court noted that the appellant, in its responses to the NPPA's notices, admitted to purchasing the drug directly from the manufacturer, Oscar Laboratories Pvt. Ltd, suggesting involvement beyond mere dealership. Although the appellant fulfilled roles of both distributor and dealer, it did not exempt them from Paragraph 13, the court held.

The Supreme Court noted that the High Court pierced the corporate veil and found an overlap between Oscar Laboratories Pvt. Ltd. and the appellant's own group companies. Despite this, the Supreme Court chose not to delve into this issue further, asserting that the appellant remained independently liable.

The court rejected the appellant's challenge to the validity of the demand under the DPCO was dismissed by the court, as the appellant never raised this issue earlier in the High Court.

The Supreme Court noted that the appellant failed to produce any agreement with the manufacturer regarding Roscilox. This lapse was raised by the authorities, who argued the appellant didn't disclose its arrangement with Oscar Laboratories Pvt. Ltd. sufficiently. During the High Court proceedings, the appellant introduced a new claim of sourcing from Delta Aromatics Pvt. Ltd. from September 1999, which was rejected for lacking evidence.

Consequently, the Supreme Court upheld the Delhi High Court's decision to dismiss the appellant's writ petition challenging the demand notices. The court also vacated the earlier order of status quo dated November 10, 2014.

Case no. – Civil Appeal no. 7209 of 2019

Case Title – M/s. Sun Pharmaceutical Industries Ltd. v. Union of India and Ors.

Citation : 2024 LiveLaw (SC) 487