Supreme Court Upholds NPPA Decision on Sun Pharma Overcharging

Under the terms of the Drugs (Price Control) Order 1995 (DPCO), the Supreme Court on Monday upheld the National Pharmaceutical Pricing Authority's (NPPA) decision to recover Rs 4.65 crore, including interest, towards the excess price charged by Sun Pharmaceuticals for Roscilox, a brand of a drug formulation based on cloxacillin.The question on the agenda for the highest court was whether the NPPA had a right to demand in February 2005, together with interest, Rs 4.65 crore from the pharmaceutical company in order to recoup the higher price than the government had set under the DPCO for the formulation of drugs between April 1996 and July 2003.

A bench led by Justice Sanjay Kumar rejected Sun Pharmaceuticals' appeal contesting the demand order, ruling that "it was not open to it to baldly claim that it was not a 'distributor' but only a 'dealer' given its own inconsistent versions and in the absence of a firm factual foundation being built up by Sun Pharma with proper documentation as to its status."

"At the moment, Sun Pharma has fulfilled both duties. That would not, however, be sufficient to exclude the appellant from the provisions of Paragraph 13 of the DPCO, which aims to regulate the costs at which pharmaceutical formulations are made accessible to the general public by threatening to recoup the higher charges charged for these medication formulations by individuals engaged in their production and promotion," the statement read.It stated that Sun Pharma purportedly bought the medicine formulation from Oscar Laboratories, from which it "undertook the exercise of piercing the corporate veil and found, on facts, that there was overlapping and merger of identities of Oscar Laboratories" with its own group firms.

The NPPA had claimed that the corporation had not disclosed all relevant information regarding its agreement with Oscar for the distribution of the medication formulation.

Although the company claimed it was not a distributor, importer, or manufacturer and hence was exempt from several of the DPCO's regulations, the NPPA stated that Sun Pharma had acknowledged buying the medication directly from the manufacturer. According to the appellant's own admissions in its answers, it follows that it had direct communication with the purported manufacturer. Note that a "dealer," as that term is defined in the DPCO, is a wholesaler or retailer who purchases or sells medications, and a "distributor," as that term is defined therein, is a distributor of the drugs or a stockist designated by a manufacturer, the SC stated.