The judgement and final order dated November 12, 2002 passed by the Hon'ble High Court of Karnataka at Bangalore, dismissing the Civil Writ Petition No.38973 of 1998 filed by M/s SKB v/s Union Of India has thrown the pharma Industry in a tizzy, and rightly so.

The National Pharmaceutical Pricing Authority (NPPA) immediately thereafter issued a press note on January 16, 2003 reproducing the operative part of the judgement and directing all the manufacturers to implement the prices in respect of bulk drugs / formulations, fixed / notified by the NPPA.

What needs to be understood here is that the verdict was the fallout of an illogical interpretation of Para 16 of DPCO 1995 by the government.
Way back in October 1999, the issue of interpretation of Para 16 of DPCO 1995 was being actively debated, both, in the NPPA and the Ministry. Apprehending that any rash or illogical interpretation of the Para could put the entire industry in an impossible situation a representation was submitted to the Department of Chemicals & Petrochemicals (DC&PC), lodging a strong protest against any interpretation of Para 16 being made without having a dialogue with or considering the views of the industry.

The important issues which were raised, were as follows:

1. One interpretation of this para is that if the Ceiling Price or an Approved Price of a formulation is reduced, then, all the manufacturers have to sell their existing stocks, which may be lying in the Metros, Cities, Towns, Villages and indeed micro-interiors, at the revised prices.
2. The practice of stickering revised prices on existing stocks was brought to an end by the Retail Price Order, which strictly prevented alteration of any MRPs on packs.
3. The concept of implementing new prices only from prospective new batches, was introduced and it is for this specific reason that the provision of stating the Effective Batch No. and Date of Manufacture was incorporated in Form V of DPCO 1987 and subsequently DPCO 1995. It is, from this "Price List" that Monitoring Authorities are supposed to start tracing price violations.
4. A revision in the price of a product, particularly an administered price can only be implemented prospectively and never retrospectively. Besides, once the goods have left the factory after paying a certain excise duty and despatched to various places all over the country, they cannot be recalled and revised duties paid on the revised price.
5. Any other interpretation than that which is being followed may be mischievous and bad in law.

It was precisely because of such confusion in the market place that OPPI & IDMA had made strong representations to the DC&PC in the then Ministry of Petroleum, Chemicals and Fertilizers, which had immediately issued a Circular on April 28, 1979 which interalia stated:

"A question has been raised whether the reduction in prices is applicable to all the stocks of distributors, dealers, etc. or only to such of the stocks as are cleared after the date of effectuation of reduction. This matter has been examined in the consultation with the Ministry of Law, Justice and Company Affairs (Department of Legal Affairs), based on which it is clarified that all reductions in the prices of formulations effected from time to time by the Central Government would be applicable to the stocks cleared on and after the date of effectuation of reduction, provided, however that:

1) the batch numbers from which the reduction is effective, are clearly indicated on the price list issued in pursuance of the reduction;
2) the manufacturers shall, jointly with the distributors, dealers, etc. ensure that the formulation batches which are meant to be sold at the reduced prices are actually sold at the reduced prices; and
3) in doing so they do not infringe any other law of the land."

The industry is only following the procedure laid down by Govt. which was duly approved by the Law Ministry, and which has been subsequently enshrined in the 1987 and 1995 DPCO's. By asking or forcing the manufacturers to recall and relabel the goods, which in itself is an impossible, not to mention impractical task, Govt. is in fact asking the Industry to violate the DPCO 1995.

Whilst framing the new DPCO the Department of Chemicals & Petrochemicals needs to consider the following very seriously, if it wishes to make medicines available in abundance at affordable prices:

1. There is no provision in the DPCO 1995 which provides that any such price fixed by the Govt., by notification shall apply to those batches of the concerned drugs/medicines which are manufactured before the date of Notification and which have already gone into the market after paying Excise Duty.

2. Nowhere in the DPCO 1995 is the word 'retrospective' mentioned. The Form V also specifically provides for a specific Batch No. and Date from which the revised price becomes effective.

3. Para 14 (1) merely states that the new price will be put into effect within 15 days from the date of Notification. It does not say that in respect of the batches that have gone into the market earlier, which may be one, two or even three years old, depending upon the date of expiry which is fixed as per the Drugs & Cosmetics Act and Rules.

When the price of a medicine is fixed by the NPPA, at a given point of time, by way of Notification or issuing an individual Price Approval Order, in accordance with the provisions of Para 7 of DPCO 1995, it is based upon the then prevailing prices of the bulk drug, raw materials, excipients, packaging materials and the prevailing conversion cost and packing charges, notified at that particular time.

Subsequently after 1, 2, or 3 years when the Govt. refixes the price of the same formulation, the revised price is based on a totally different set of figures. The cost of the raw materials etc. may have gone down substantially.

Can the Government force a manufacturer to recall his product from the market, for which the Government itself had fixed a legitimate price, in exercise of the same section 3 of the Essential Commodities Act, 1955, based on the then prevailing actual costs of inputs and tell him to market the same product at a lower price because now the cost of the ingredients / inputs has gone down and a lower price has been notified, under the same Act? Would the Government allow this procedure for upward revisions?

Besides, there is no provision for labeling, stickering or stamping the revised MRP on medicines. Neither DPCO 1995 nor the Drugs & Cosmetics Rules provide for it. Rule 104 A - Prohibition against altering inscription on containers, labels or wrappers of drug, specifically prohibits what the Government wants industry to do. In fact, Drug Inspectors serve notices on manufacturers who sticker the products with a lower MRP, when they want to voluntarily sell products at a lower price. Besides, it is impossible to stamp a new price on small vials or ampoules. This practice would encourage fraudulent stamping and stickering in the rural areas and millions of gullible patients would be fleeced by unscrupulous dealers.

The issue of goods having been cleared months or years ago, after paying Excise Duty also complicates the matter. It is precisely because of all these reasons that the Government had issued Circular dated. 28.4.1979.

With the amendment in the DPCO 1987 and DPCO 1995, Government has itself laid down the law that new prices have to be given effect to, only prospectively, and asking industry to give retrospective effect would not only be impossible in Law but would cause grave harm to millions of gullible patients in rural areas, where unscrupulous dealers would stamp or re-label every product with higher prices instead of only those products whose prices have legally gone down.

The NPPA also cannot take recourse to Para 16 in isolation. One can ask, why then should industry not take recourse to Para 7 alone, which has been used by Government itself to fix a just fair and reasonable price for the particular formulation. One hopes that the Government will be more understanding and appreciative of the innumerable problems which would be created, not only for the Industry but also the poor suffering patients who will be "patiently" waiting for their medicines. Because if NPPA revises the prices of say 72 formulations simultaneously, which it has done in the past, then, 500000 chemists X 72 formulations = 3,60,00,000 packs, which would have to be sent back to the manufacturers, would disappear from the Indian market.

What does the industry do with them when Rule 104 A of the Drugs & Cosmetics Rules 1945 does not permit what the NPPA wants it to do?
It is learnt that this impasse is due to certain sections of Industry brazenly flouting the well-established norms and not implementing the revised prices, often for well over an year.
The problem can be solved to a great extent by Govt. immediately amending the DPCO 1995 to provide for stringent and exemplary punishment for defaulters, under the Essential Commodities Act.

It should also notify the quantities, which the manufacturers can produce in the 15 days starting from the date of the Notification or Price Approval Order. It could be the average production during the past six months. In any event, it is imperative that these provisions are incorporated in the new DPCO.

-- The author is an independent pharmaceutical consultant