The requirement to submit a test licence in the drugs and cosmetics rules goes beyond the ambit of the Parent Act, and is a hindrance to R&D for pharma companies, writes Syngene International’s Shreekanth Katti

One of the essential principles of interpretation of statutes is that delegated legislation cannot override the provisions of the enabling act. The enabling act gives the power to the government to make subordinate legislation, and the delegate on whom such power is conferred has to make rules within the limits of the authority vested by the act. The delegate authority cannot override the act, either by exceeding its authority or making provisions inconsistent with the act. A delegated legislation also cannot lay down something that is not capable of being related to any of the purposes mentioned in the act.

The Drugs and Cosmetics Rules, 1945 (D&C Rules), issued under the under the Drugs and Cosmetics Act, 1940 (D&C Act), in rule 89 requires a company proposing to manufacture a drug for examination, test or analysis to obtain a licence in form 29 (test licence). In business parlance, manufacturing the drug for examination, test or analysis is referred to as manufacturing for R&D purposes.

A company has to obtain hundreds of test licences in a year for its R&D activities, and the crucial time spent in obtaining the test licence impacts many business opportunities. The Indian Pharmaceutical Alliance has also raised concern over India’s stringent and excessive requirements for developing products for R&D purposes.

Due to this, pharma companies, contract research organisations, and contract development and manufacturing organisations are facing difficulties with the registration of their product in India, as well as globally. Additionally, the test licence is something not originally conceived by the legislators.

This article discusses why the test licence, as contemplated under the D&C Rules, is not intended to be covered by the D&C Act and is inconsistent with its provisions. It therefore violates the principle of subordinate legislation overriding the provisions of the statute.

PURPOSE OF THE ACT

The preamble of the D&C Act provides that it had been enacted to regulate the import, manufacture, distribution and sale of drugs and cosmetics. The term “manufacture” has been defined in relation to any drug to include any process or part of a process for making, altering, ornamenting, finishing, packing, labelling, breaking up, or otherwise treating or adopting any drug with a view to its sale or distribution. Therefore, the basic premise of the term “manufacture” under the D&C Act is manufacture for sale or distribution, and does not cover scenarios where the manufacturing is carried out for R&D purposes.

Chapter IV of the D&C Act, which is claimed to be the genesis of the test licence, only deals with the provisions relating to the manufacturing, sale and distribution of drugs. The relevant provisions under section 18 prohibit manufacture for sale, distribution, resale, stock, exhibit, or offer for sale, or distributing any drug except under a licence.

It is important to note that section 18 further provides that the license will not apply to the manufacture of the drug, subject to prescribed conditions, of small quantities of any drug for R&D purposes. Therefore, section 18 exempts from obtaining the manufacturing licence if the drug is manufactured in small quantities for R&D purposes.

PENAL PROVISIONS

The penalty provision under the D&C Act also penalises manufacturing that is intended for sale alone, and does not seem to cover manufacturing for R&D purposes. It provides that whoever manufactures for sale or distribution, resale, stocks, exhibits, offers for sale, or distributes any drug without a valid licence as required under section 18 is punishable with imprisonment of three to five years and a fine of INR100,000 (USD1,340), or three times the value of the drugs confiscated, whichever is more.

Section 33 of the D&C Act only provides that the central government may make rules to give effect to the provisions of chapter IV. Therefore, when chapter IV itself did not contemplate a licence requirement for R&D purposes and instead provided an exemption (subject to certain conditions), it was self-contradictory that the rules imposed a licence requirement for such a test licence.

Further, section 33(2)(e) only says that the central government may make rules prescribing the forms of licences for the manufacture for sale or distribution of drugs, the form of application for such licences, the conditions subject to which such licences may be issued, etc., and does not provide for a licence form and application to be prescribed for manufacture for R&D purpose, i.e., a test licence.

Section 33(2)(g) of the D&C Act provides that the central government may make rules prescribing “conditions” subject to which small quantities of drugs may be manufactured for R&D purposes. The section does not provide that it can make a rule specifying a licence for such an examination, test or analysis.

Part VIII of the D&C Rules introduces a separate chapter VIII to have provisions relating to drug manufacture for R&D purposes. Rule 86 provides that section 18 of the D&C Act, which prescribes a manufacturing licence, will not apply to the manufacture of any drug in small quantities for R&D purposes if the conditions stipulated in chapter VIII are fulfilled.

It is ironic that while the chapter says that a manufacturing licence is not required for the manufacture of a drug for R&D purposes, at the same time, it introduces another licence for the stated R&D purpose. Rule 89 provides that any person proposing to manufacture a drug for R&D purposes would require a licence in Form 29.

CLEAR INCONSISTENCY

The D&C Rules prescribing a new test licence in Form 29 to manufacture for R&D purposes is inconsistent with the D&C Act. One can say that the D&C Rules have laid down something beyond the authority provided to it under the statute, i.e., the D&C Act. This goes to a fundamental of jurisprudence that the delegated legislation cannot be inconsistent with or override the statute’s provisions. The Indian judiciary has laid down this principle in the arena of cases, and held that if there is any inconsistency or conflict between a statute and the subordinate legislation, the statute prevails.

In State of Madhya Pradesh and Ors v Bhola (2003), the Supreme Court held that a delegated legislation can be declared invalid by the court mainly on two grounds: (1) that it violates any provision of the Constitution; and (2) it is violative of the enabling act.

Suppose the delegate that has been given a rulemaking authority exceeds its authority and makes any provision inconsistent with the act, and thus overrides it. In that case, it can be held to be a case of violating the provisions of the enabling act. In Hotel Balaji and Ors v State of AP and Ors (1986), the Supreme Court held that: “It is well to remind ourselves that rules represent subordinate legislation. They cannot travel beyond the purview of the act. Where the act says that rules on being made shall be deemed ‘as if enacted in this act’, the position may be different. But where the act does not say so, the rules do not become part of the act.”

It is pertinent to note that, in our informal discussion, various past and present senior officers of the drug department have concurred with this view, that the D&C Act doesn’t prescribe a test licence (only the D&C Rules do). As such, there is also frustration among those in the industry who wish that the requirement of a test licence were removed, as even logically it doesn’t make sense to have this requirement, given that drugs manufactured for R&D purposes are not intended for commercial purposes or human use.

NOT A GLOBAL PRACTICE

Moreover, organisations across the globe are allowed to manufacture drugs for R&D purposes without needing to obtain any licence from the jurisdictional authority. The test licence further hinders R&D activities with regard to drug development in India, thereby severely impacting the availability of new drugs to India’s population.

It may be noted that most of the details relating to licensing, approvals, etc., are generally prescribed by the rules. The Supreme Court has observed that the legislature cannot be expected to legislate on all issues, and has the power to shift non-essential functions to a delegate authority. There can be no quarrel with the proposition that non-essential legislative functions can be delegated.

Even to this, there is a caveat. The legislature must have control and functional powers over the delegate. One of the known methods of exercising such powers is for the delegate to place the rules/orders passed by it in the exercise of powers delegated to it before the legislature. Therefore, professionals across the industry have to keep an eye on various licence or approval requirements prescribed by the rules to see if they are intended by the statute, and whether the rulemaking is within the power given by such statute.

In the present case, even though the government has recently introduced deemed approval status for seven working days after submission of the application for the test licence, such a prescription is beyond the power bestowed by the D&C Act, and therefore needs to be removed. As an alternative, the conditions for manufacturing for R&D purposes, as required by the D&C Act, such as undertakings, may be prescribed that the manufacturer will not use for commercial use and will be used only for R&D purposes.


Shreekanth Katti is associate general manager – legal at Syngene International. The views expressed are personal in nature.

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