According to NPPA, the total amount to be recovered from pharma companies for overcharging between August 1997 and April 2016 stands at Rs4,954 crore. Photo: Pradeep Gaur/Mint
According to NPPA, the total amount to be recovered from pharma companies for overcharging between August 1997 and April 2016 stands at Rs4,954 crore. Photo: Pradeep Gaur/Mint

Supreme Court upholds centre’s notification capping retail price of drugs

Supreme Court dismissed appeals filed by pharma companies, including Cipla and Dr. Reddy's, against a notification issued under the Drugs (Prices Control) Order, 1995

New Delhi: The Supreme Court on Friday upheld a 1995 central government notification fixing the retail price of a drug formulation without first deciding the sale price of a bulk drug used in its manufacture.

In doing so, a bench comprising justices Madan B. Lokur and R.K. Agarwal dismissed appeals filed by pharma companies, including Cipla Ltd and Dr. Reddy’s Laboratories Ltd, against a notification issued under the Drugs (Prices Control) Order, 1995.

“The notifications (issued since 1999) are valid and not issued mechanically or without any application of mind," the court said in its order.

At least six pharma firms had moved various high courts which had stayed the notifications. The apex court transferred these cases to itself in 2005. The pharma companies had alleged that the notifications that capped retail prices of drugs without determining the norms for cost of packaging material were arbitrary and discriminatory.

“The government is not under any obligation to redetermine the norms every year for fixing of such prices," the court said in its order.

The government’s contention was that the pharma companies were overcharging consumers by pricing the drugs beyond the retail price cap under the pretext of packaging costs.

According to the National Pharmaceutical Pricing Authority (NPPA), India’s drug-price regulator, the total amount to be recovered from pharma companies for overcharging between August 1997 and April 2016 stands at Rs4,954 crore. In the same period, NPPA has recovered only Rs387 crore.

One expert said that the court’s decision was a welcome step. “Without going into the details of who’s the guilty party since it’s for the courts to decide, a regulator like NPPA’s ability to enforce regulations expeditiously is extremely important because judicial redressal can take such significant amounts of time. I’d like to believe that this decision will go some way in ensuring NPPA gets its due," said Muralidharan Nair, partner-life sciences at EY.

As per the information provided by NPPA on its website, it has sent out notices imposing penalties for overcharging of drugs at least 1,280 times to pharmaceutical companies.

There are instances of a single company receiving multiple notices from NPPA for overcharging and for dues owed. So while the figure does not reflect 1,280 unique companies, the fallout of the court’s decision will potentially be on many pharmaceutical companies.

Cipla and Dr. Reddy’s did not respond to emails seeking a response.

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