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"Supreme Court Upholds NPPA's Demand for Overcharging by Sun Pharmaceutical under DPCO"

M/s Sun Pharmaceuticals Industries Ltd. v. Union Of India & Others

Civil Appeal 7209/2019

Heard by Hon'ble Mr. Justice Sanjay Kumar J and Hon'ble Mr. Justice Augustine George Masih J

The legal battle of M/s Sun Pharmaceutical in the present matter began when the company received two demand notices from the National Pharmaceutical Pricing Authority (NPPA) in February and June 2005 for overcharging on the drug Roscilox. The pharmaceutical giant challenged these notices in response by filing a writ petition with the Delhi High Court. However, on July 13, 2005, the court dismissed their petition. M/s Sun Pharmaceutical filed a Letter Patent Appeal (LPA) against the dismissal. Unfortunately for the company, the Division Bench of the same court dismissed the LPA on August 6, 2014.

The appellant had already paid ₹1.25 crores towards this demand and approached the Supreme Court after failing at both levels in the Delhi High Court.

The Supreme Court dismissed the appeal on July 15, 2024 upholding the High Court’s rejection of the appellant’s claims. The status quo order regarding the recovery of the remaining amount, issued by the Court on November 10, 2014, was vacated. Consequently, the appellant was held liable for the overcharged amount.

2. Legal Issue

Whether the National Pharmaceutical Pricing Authority (NPPA) was justified in raising a demand against the appellant (M/s Sun Pharmaceuticals Industries Ltd.) for charging a higher price than that fixed by the Government under the Drugs (Price Control) Order, 1995 (DPCO).

3. Points of Arguments

Appellant:

The Pharma Company claimed that it was neither a manufacturer, importer, nor distributor, and thus is outside the scope of Paragraph 13* of the DPCO.

More so the computation of the demand was erroneous based on Paragraph 19 of the DPCO.

Respondent:

Asserted that the appellant was a 'distributor' under the DPCO, thereby liable under Paragraph 13.

Highlighted the appellant's inconsistent explanations and failure to provide complete documentation regarding its arrangements with the manufacturer.

4. Court's Observation

The appellant admitted having purchased the drug directly from the manufacturer.

The definitions of 'distributor' and 'dealer' in the DPCO are not mutually exclusive, allowing for a distributor to also be a wholesaler or retailer.

‘Distributor’ means a distributor of drugs or his agent or a stockist appointed by a manufacturer or an importer for stocking his drugs for sale to a dealer.’

‘Dealer’ means a person on the business of purchase or sale of drugs, whether as a wholesaler or retailer and whether or not in conjunction with any other business and includes his agent.’

The appellant's inconsistent statements and lack of proper documentation undermined its claim of not being a distributor.

The intent of Paragraph 13 of the DPCO is to control drug prices and should not be narrowly interpreted.