HC quashes NPPA demand notices to Bharat Serums, Bard for allegedly overcharging on drugs, medical devices

The Delhi High Court has quashed several demand notices of the National Pharmaceutical Pricing Authority (NPPA) by which Bharat Serums and Vaccines and Bard Healthcare India were held guilty of overcharging on drugs and medical devices.

Regarding NPPA’s direction in the notices to deposit the overcharged amount, the high court asked the authorities to undertake a fresh exercise of re-computation of the amounts, if any payable, by the two companies bearing in mind the conclusions recorded in the judgement.

“Accordingly, and for all the aforesaid reasons, the writ petitions shall stand allowed. The impugned orders dated July 5, 2018, and June 26, 2018, pertaining to Bharat Serums and the order dated October 22, 2020, as well as the demand notice dated November 7, 2019, relating to Bard, shall stand quashed,” Justice Yashwant Varma said in the 90-page verdict.

The high court allowed the separate petitions by Bharat Serums and Bard challenging the demand notices.

It further said while computing the ultimate liability of the individual petitioners, NPPA shall also take into consideration any deposits that may have been made by the petitioners during the pendency of the present litigation and pursuant to the orders which stood impugned here.

The petitions challenged the demand notices issued by NPPA under the Drugs (Price Control) order, 2013, holding the petitioner companies guilty of overcharging and thus liable to deposit the overcharged amount together with interest thereon.

The two demand notices issued to Bharat Serums relate to non-scheduled formulations named Histoglob and U-Tryp.

The two demand notices issued to Bard, which was represented in the court through senior advocate Amit Sibal and lawyer Krishna Sarma, were in respect of 82 medical devices produced and distributed by it.

Regarding Bharat Serums, NPPA had held it to be in violation of Para 20 (Monitoring the prices of non-scheduled formulations) of the 2013 order concerning the sale and distribution of Histoglob for the period February 2014 to July 2018.

The allegation of overcharging in respect of U-Tryp covered the period May 2015 to July 2018.

Regarding Bard, the authorities alleged that medical devices were overcharged during the period from January 2015 to January 2018.

As per Para 20 of the 2013 order, the government shall monitor the maximum retail prices (MRP) of all the drugs, including the non-scheduled formulations, and ensure that no manufacturer increases the maximum retail price of a drug more than ten per cent of the maximum retail price during preceding twelve months and where the increase is beyond ten per cent of the maximum retail price, it shall reduce the same to the level of ten per cent of the maximum retail price for next twelve months.

It further says that the manufacturer shall be liable to deposit the overcharged amount along with interest thereon from the date of increase in price in addition to the penalty.

Bharat Serums had submitted that in the period under scrutiny, it had not overcharged prices and had merely rounded off the price of its drug.

Bard had taken the stand that the overcharging of medical devices occurred on account of a lack of clarity in respect of the format in which price disclosures were to be made and that the overcharging was neither deliberate nor intentional.

NPPA submitted that once a manufacturer is found to have violated the restrictions placed in Para 20, it would become disentitled to claim the 10 per cent annual increase till the time it reduces the MRP of the non-scheduled formulation to bring it within the band of the permissible MRP and hold the same for the next twelve months.

The court, in its September 22 judgement, said there was no justification in the stand taken by the respondents which contend that while it would be open for a manufacturer of a scheduled formulation to round off the price of its products that benefit should be denied to manufacturers of non-scheduled formulations.

Once NPPA had concluded that rounding off was a well-accepted mathematical principle, the court found no justification to discriminate between scheduled and non-scheduled formulations, it said.

“The court has borne in mind that insofar as non-scheduled formulations are concerned, the NPPA only exercises the power to monitor their prices. Having freed this category of manufacturers from the rigors of price control, there appears to be no justification to restrict the applicability of the rounding off principle to scheduled formulations only,” the high court said.

It further said “Depriving manufacturers of non-scheduled formulations of the facility of rounding off which is otherwise and generally accepted by the NPPA itself as a well-recognised mathematical practice would be manifestly arbitrary. The respondents have failed to point out any justifiable or rationale basis on account of which the principle of rounding off would not apply to non-scheduled formulations.”.

In the two notices, Bard was asked by NPPA to deposit Rs 6.92 crore and Rs 7.6 crore respectively.

Similarly, Bharat Serums was asked by NPPA to show cause why it not be held to be liable to pay a sum of Rs 2.04 crore for the period July 2015 to March 2018 along with interest.

In the two demand notices, Bharat Serums was asked to deposit Rs 2.04 crore towards the overcharging of Histoglob and Rs 4.81 crore in respect of U-Tryp.