Bombay HC holds NPPA Notifications Fixing Drug Prices Without Statutory Formula As Ultra Vires

The Bombay High Court has struck a decisive blow against administrative overreach in pharmaceutical pricing, ruling that price-fixing notifications issued by the National Pharmaceutical Pricing Authority (NPPA) without following the mandatory statutory formula are illegal and ultra vires. In a judgment that safeguards manufacturers from arbitrary recovery demands, the Bombay High Court held that the government cannot bypass the rigorous calculation mechanism prescribed under the law to levy overcharging penalties on medicinal formulations.

A Division Bench comprising Justice Manish Pitale and Justice Shreeram V. Shirsat heard the challenge against recovery notices and demand demands issued under the Drugs (Price Control) Order, 1995 and the Maharashtra Land Revenue Code, 1966. The Bombay High Court was tasked with determining whether the NPPA could fix ceiling prices for formulations through broad, blanket notifications without applying the specific material and conversion cost factors required by law.

Key Takeaways

Mandatory Statutory Compliance

Price fixation under the Drugs (Price Control) Order, 1995 must strictly adhere to the formula prescribed in the order; any deviation renders the notification ultra vires.

Restraint on Executive Delegation

The NPPA cannot exercise delegated powers to issue blanket notifications that effectively abdicate the Central Government's responsibility to calculate prices for specific formulations.

Protection Against Arbitrary Demands

Recovery notices for 'overcharging' are legally unsustainable if the underlying price fixation notification has not followed the rigorous procedural requirements of the law.

Limitation on Interest Claims

Authorities cannot claim interest for delays caused by their own procedural lapses or for periods where demand notices were previously set aside for violating principles of natural justice.

Invalidation of Blanket Notifications

The Bombay High Court analyzed the validity of two specific notifications dated September 27, 2007, and January 30, 2009. The 2007 notification attempted to fix ceiling prices for multivitamin and mineral tablets, which the respondents sought to apply to the petitioner's osteoarthritis drug, 'Cartigen Forte'. The Bench observed that the active pharmaceutical ingredients of the drug were not multivitamins and that the NPPA failed to apply the formula under Paragraph 7 of the Drugs (Price Control) Order, 1995 to the specific product.

Regarding the 2009 notification, which claimed that any composition containing a scheduled drug would be subject to existing price ceilings, the Bombay High Court found it to be "extremely widely worded" and in direct conflict with the parent order. The Bench slated upon the calculation of drug price that “The moment the very formula for calculation of ceiling price as per paragraph 7 read with paragraph 9 is taken away, it becomes clear that the impugned notification dated 30.01.2009 is rendered ultra vires DPCO 1995 itself. We find that when ceiling price is not fixed by the respondents as per the mechanism under paragraphs 7, 9 and 11 of DPCO 1995 and it is deemed that the ceiling price is fixed when the same is ascertained as regards any of the ingredients in the formulation, the very basis of calculation and obligation upon the respondents to fix the price of scheduled formulation in terms of DPCO 1995 is taken away.”

Ratio

Any notification issued by the National Pharmaceutical Pricing Authority that purports to fix ceiling prices for pharmaceutical formulations without following the mandatory calculation formula, incorporating material costs, conversion costs, packaging charges, and excise duty, as prescribed under Paragraph 7 of the Drugs (Price Control) Order, 1995, is arbitrary and ultra vires. The executive cannot substitute a specific statutory price-fixing mechanism with a blanket or broad-based notification.

Background

The dispute originated when the NPPA issued show-cause notices to Pharmed Limited, alleging that their formulation 'Cartigen Forte' was sold above the ceiling price. The respondents relied on a 2007 notification for multivitamins because the drug contained minuscule amounts of Vitamin C and E. When the petitioners challenged the initial demands, the High Court in a previous round of litigation (Writ Petition No. 2804 of 2015) had remanded the matter for a fresh hearing.

However, the NPPA issued fresh demand notices for over Rs. 13 crore (including interest) without passing a speaking order or applying the statutory formula. The petitioners argued that the active ingredients of their drug were Glucosamine Sulfate and Chondroitin Sulfate, which were not subject to the multivitamin ceiling. They also relied on Franco Indian Remedies Private Limited & Anr. vs. Union of India & Anr. to contest the interest calculation. The Bombay High Court ultimately found that since the base notifications were legally flawed, all consequential recovery steps under Section 267 of the Maharashtra Land Revenue Code, 1966 were unsustainable. The Bombay High Court allowed the petition, quashing the 2009 notification entirely and the 2007 notification insofar as it applied to the petitioner's drug.

Case Details:
Case No.: WRIT PETITION NO. 595 OF 2017
Case Title: M/s. Pharmed Limited & Anr. Versus Union of India & Ors.
Appearances:
For the Petitioner(s): Mr. Navroz Seervai, Senior Counsel a/w Mr. Akash Rebello, Mr. Abhay Jadeja and Ms. Urvi Gulechha i/by Jadejas & Partners.
For the Respondent(s): Mr. R. V. Govilkar, Senior Counsel a/w Dr. G. R. Sharma, Mr. D. P. Singh and Ms. Apurva Gupta for Respondent Nos. 1 to 3; Ms. Anupamaa Pawar, AGP for Respondent No. 4-State.

Source: 2026 CaseBase(BOM) 6483