The Delhi High Court has quashed a demand of approximately Rs 5 crore (Rs 50 million) raised by the central government against Ranbaxy Laboratories.
In fact, it has ordered the government to pay Rs 2.44 crore (Rs 24.4 million) - remitted by Ranbaxy as part payment following an interim court directive - with six per cent interest within eight weeks.
The verdict turns significant in the backdrop of the ever increasing legal tussles between the government and drug companies over alleged over-pricing of medicines.
While the National Pharmaceutical Pricing Authority (NPPA) has issued demand notices for Rs 2,147.01 crore (Rs 21.47 billion) to companies for selling medicines at prices higher than fixed by it, only Rs 191.40 crore (Rs 1.91 billion) has been realised till February 28, 2010. Of the balance amount, Rs 1,877.23 crore (Rs 18.77 billion) is under litigation in various courts.
The verdict, which came on May 10, brings to an end the six-year-old case filed by Ranbaxy against the department of chemicals and petrochemicals over the sale of ampicillin trihydrate during 1979 to 1987.
The department had asked Ranbaxy to remit Rs 4.88 crore (Rs 48.8 million) into the Drug Price Equalisation Account (DPEA). Scrapped in 1987, DPEA was a common account where all extra money earned by companies by sourcing raw materials at a price lesser than the government fixed price was expected to be remitted.
Ranbaxy challenged the government order as it felt that it had not outsourced the raw material but had always produced bulk drugs for captive use during the concerned period.
The company also argued that no liability demand was computed while DPEA was in force, but the demand was raised after the government scrapped the policy for a newer direct price-fixing policy. The current demands raised by NPPA follows the new rule.
Justice S Muralidhar, in his verdict, felt that no demand could have been raised against the company in respect of the DPEA liability and quashed the department's April 15, 2004 letter.
The court has asked the entire amount deposited by Ranbaxy to be refunded together with a 6 per cent simple annual interest from the date of deposit to the date of payment. In case the government fails to refund the amount in time, it will pay penal annual interest of 12 per cent for the period of delay.
