2014 (3) TMI 113 - SC - Indian Laws

Whether the prices fixed under the Drugs (Prices Control) Order (for short, DPCO ) in respect of drugs/formulations would be operative in respect of all sales subsequent to 15 days from the date of the notification by the Government in the official gazette/receipt of the price fixation order by the manufacturer. - Diametrical opposite view taken by two High Courts, Karnataka and Delhi - Held that - if the departmental circular provides an interpretation which runs contrary to the provisions of law, such interpretation cannot bind the Court. Karnataka High Court has held that, the contention of the Petitioner that revised prices will not apply to the existing stocks but only to new batches of drugs and formulations to be manufactured after 15 days of the notification cannot be accepted. The provisions of the DPC Order are clear that prices should be revised within 15 days even in regard to the formulations which were manufactured prior to the date of notification or those manufactured within 15 days from the date of notification Delhi High Court has gone more by practical difficulties which a manufacturer may suffer and completely overlooked the scheme of the DPCO which is intended to give benefit to the consumer of the reduced current price of the formulation. - The view of Delhi HC are not acceptable. The above view of the Delhi High Court is fundamentally flawed and clearly wrong. The Karnataka High Court has taken the correct view and the same is upheld. - Decided against the manufacturer/distributor and in favor of Union of India.

Summary

Issues Involved:
1. Whether the prices fixed under the Drugs (Prices Control) Order (DPCO) are applicable to all sales subsequent to 15 days from the date of notification or receipt of the price fixation order by the manufacturer.
2. Interpretation of relevant provisions of DPCO, 1987 and DPCO, 1995.
3. The applicability and binding nature of the 1979 circular issued by the Central Government.
4. The effect of price fixation and the obligation to sell at the notified price within the distribution chain.
5. The relevance of batch numbers in the context of price fixation and implementation.

Detailed Analysis:

1. Applicability of Prices Fixed Under DPCO:
The Supreme Court addressed the conflicting judgments of the Karnataka High Court and the Delhi High Court regarding the applicability of prices fixed under DPCO. The Karnataka High Court held that revised prices should apply to all sales within 15 days of the notification, including existing stocks. Conversely, the Delhi High Court allowed the sale of pre-notification stocks at old prices, relying on a 1979 circular. The Supreme Court upheld the Karnataka High Court's view, emphasizing that the revised prices apply to all sales after the 15-day period, irrespective of the date of manufacture.

2. Interpretation of DPCO Provisions:
The Court compared relevant provisions of DPCO, 1987, and DPCO, 1995, noting their similarities. It concluded that under para 14(1) of DPCO, 1995, manufacturers must implement the new prices within 15 days from the notification date. The Court clarified that this period is a grace period for manufacturers to adjust their business practices, not a window to sell at old prices. The objective of DPCO is to ensure consumers benefit from price reductions immediately after the 15-day period.

3. Binding Nature of the 1979 Circular:
The Court examined the reliance on the 1979 circular, which allowed old prices for stocks cleared before the new prices took effect. The Court ruled that this circular could not override the statutory provisions of DPCO, 1987, and DPCO, 1995. It emphasized that the circular was not binding on the Court and could not be used to interpret statutory provisions contrary to their plain meaning. The circular was deemed inconsistent with the objectives of the DPCO, which aim to benefit consumers by ensuring reduced prices are passed on immediately.

4. Obligation to Sell at Notified Price:
The Court highlighted that paragraph 16 of DPCO, 1995, imposes an absolute obligation on all parties in the distribution chain to sell formulations at the notified price. This ensures that consumers receive the benefit of reduced prices. The Court rejected the argument that manufacturers could sell pre-notification stocks at old prices, as this would lead to different prices for the same product, undermining the regulatory framework of the DPCO.

5. Relevance of Batch Numbers:
The Court dismissed the argument that batch numbers indicated in Form V could determine the applicability of new prices. It clarified that the batch number is for internal record purposes and does not affect the obligation to sell at the notified price. The Court emphasized that consumers should not face different prices based on batch numbers, as this would contradict the DPCO's objective of equitable pricing.

Conclusion:
The Supreme Court dismissed the appeals of the manufacturer/distributor and upheld the Karnataka High Court's judgment. It allowed the appeals of the Union of India, affirming that the revised prices under DPCO must be implemented within 15 days and apply to all sales thereafter. The Court emphasized the consumer-centric objective of the DPCO and rejected the reliance on the 1979 circular, ensuring uniformity in drug pricing and preventing exploitation through old price sales.