E-pharmacies and the law: an uneasy balance

Shruti Gupta

Ronin Legal, Bangalore

shruti@roninlegal.in

Anushka Iyer

Ronin Legal, Bangalore

anushka@roninlegal.in

Shantanu Mukherjee

Ronin Legal, Bangalore

shantanu@roninlegal.in

Introduction

The pharmaceutical supply chain in India has traditionally relied on small neighbourhood pharmacies for last-mile distribution. Such pharmacies have proliferated to the point where there is often one on each street, and several within a square mile, in every city. Access to brick-and-mortar pharmacies has therefore generally not been a problem in India, at least in most urban areas, and the industry has prospered over the years.

E-pharmacies, like their online counterparts in retail, transportation and dining, have sought to disrupt this status quo since 2015 but have faced substantial opposition from the brick-and-mortar pharmacists’ lobby. These e-pharmacy startups have relied on steep discounts to make inroads into a market dominated by the Kirana drugstore. They enjoyed only moderate success, and the battle with the brick-and-mortar lobby continued, with litigation, complaints to the regulator and calls for regulation, until finally, the Covid-19 pandemic led to an uneasy truce.

That truce has now broken, and there is renewed litigation, show-cause notices and confusion around whether e-pharmacies are legal. What exactly is all the controversy about? This article will explain.

Current regulatory framework governing the sale of drugs in India

The current legislative framework governing the manufacture, sale and distribution of drugs and cosmetics in India includes the Drugs and Cosmetics Act of 1940 (‘D&C Act’), the Drugs and Cosmetics Rules of 1945 (‘D&C Rules’), and the Pharmacy Act of 1948.

The D&C Act and Rules contain several provisions to uphold the quality and standard of drugs and their manufacture, sale or distribution is strictly contingent upon obtaining and adhering to the conditions stipulated in a valid licence. Notably, certain drugs listed under Schedule H, Schedule H1 or Schedule X to the D&C Rules may only be sold pursuant to a valid prescription issued by a duly registered medical practitioner. Furthermore, the dispensation of any medication may only be carried out by a registered pharmacist.

It is evident that the existing legislation lacks specific provisions pertaining to the online sale or distribution of drugs. However, one could argue that the absence of such provisions does not necessarily amount to a prohibition of the same.

Sub-committee report and the draft E-Pharmacy Rules

In order to address the uncertainty surrounding the online sale of drugs, a sub-committee was formed following the 48th Drugs Consultative Committee (DCC) meeting.[1]

Risks associated with the online sale of drugs

The sub-committee report[2] shed light on several risks associated with the emergence of e-pharmacies in the market, including the prevalence of fraudulent and illicit pharmacies, the delivery of drugs to minors, mishandling of drugs during transportation, concerns regarding patient data confidentiality and the multiplicity of drug dispensation.

Applicability of the D&C Act and Rules and IT Act

On 30 December 2015, the Drugs Controller General of India (DCGI) issued a circular clarifying that the D&C Act and Rules did not distinguish between the conventional and online sale of drugs.[3] This implied that the DCGI expected online pharmacies to comply with the same requirements as physical pharmacies, such as procuring necessary licences, employing registered pharmacists and verifying prescriptions, among others.

The sub-committee report also clarified that until specific licence requirements tailored to e-pharmacies were formulated, the provisions outlined in the D&C Act and Rules concerning licensing and registration would apply to e-pharmacies in the same manner as traditional offline pharmacies.

Furthermore, the report recognised the applicability of the provisions of the Information Technology Act 2000 (‘IT Act’) where e-pharmacies functioned as intermediaries and affirmed that, in such instances, all obligations applicable to intermediaries under the IT Act, including the authentication of electronic records[4] such as scanned copies of prescriptions, would extend to e-pharmacies. However, the limited presence of specific provisions regarding the sale and distribution of drugs restricted the comprehensive applicability of the IT Act.

Draft E-Pharmacy Rules

As a result of the sub-committee’s recommendation to permit the online sale of drugs under a stringent regulatory framework,[5] the Draft Drugs and Cosmetics (Amendment) Rules of 2018,[6] (‘Draft E-Pharmacy Rules’) were introduced.

The Draft E-Pharmacy Rules outlined several requirements for e-pharmacies, including licence registration, customer support, grievance redressal mechanisms, compliance with the IT Act, safeguarding patient data confidentiality, procedures for sale and distribution and the prohibition of the sale and distribution of narcotic drugs and drugs listed in Schedule X of the D&C Rules.

Despite representing a step forward, the Draft E-Pharmacy Rules, unfortunately, remain in draft stage and are yet to be officially notified.

Lawsuits and judicial interpretation

In the absence of regulations specifically governing e-pharmacies, litigation arose over the legality of their continued operations.

Zaheer Ahmed v Union of India[7]

In 2018, Dr Zaheer Ahmed filed a petition in the Delhi High Court, which alleged that the online sale of drugs was prohibited under law, and accordingly, e-pharmacies were in direct violation of the D&C Act and Rules. The Delhi High Court granted an interim injunction restraining the sale of drugs by e-pharmacies. As a result, the DCGI directed the competent authorities in all states to undertake the necessary actions against e-pharmacies operating without the required licences in order to comply with the Delhi High Court’s order.[8]

However, the continued online sale of drugs by e-pharmacies has resulted in a contempt petition being filed by the petitioner against the central government for the failure to take corrective action.[9]

Meanwhile, on 22 May 2023, the Delhi High Court granted a six-week period for the central government to provide a conclusive response regarding the outcome of fresh consultations concerning the draft E-Pharmacy Rules. The Delhi High Court emphasised that the pending issues should not impede the government from taking action against online platforms that continue to violate the Delhi High Court’s 2018 stay order. In response, the central government informed the Delhi High Court that, in February 2023, it had directed licensing authorities in the states and union territories to take the action required to address the continued non-compliance of e-pharmacy companies.

Tamil Nadu Chemist and Druggist Association v Union of India[10]

A similar petition was filed before a single judge bench of the Madras High Court in 2018. The petitioner, in addition to other arguments, contended that drugs listed under Schedules H, H1 and X to the D&C Rules required prescriptions from registered medical practitioners. This requirement was not imposed by e-pharmacies on its customers. The Single Judge Bench issued an order directing e-pharmacies to cease the online sale of drugs until the draft E-Pharmacy Rules were officially notified.

This order was subsequently challenged before the Division Bench. E-pharmacies operating under the inventory model argued that their operations were in compliance with the law since they possessed the necessary wholesale and retail licences and supplied drugs through registered pharmacists. On the other hand, e-pharmacies operating under the marketplace model argued that they merely provided a technology platform to connect customers with third-party pharmacies that were duly licenced and registered under the D&C Act and Rules. They likened their role to that of food aggregator apps like Swiggy and Zomato, asserting that they were not bound by the D&C Act and Rules.

The Division Bench reversed the order of the single judge on the ground that the authorities constituted under the D&C Act and Rules were competent to take appropriate action against any violations.[11] The Division Bench also acknowledged that an abrupt ban on the online sale of drugs would cause significant hardship to patients who relied on online platforms for medicines.

Covid-19 and the e-pharmacy boom

In April 2020, following the Covid-19 outbreak, India’s central government declared that e-pharmacies were ‘essential services’, and this, together with the total nationwide lockdown in effect at the time, lifted the industry’s fortunes. Over the next two years, leading e-pharmacy companies enjoyed rapid growth, raised significant funding and even acquired legacy healthcare companies, such as diagnostics chains. Meanwhile, large Indian conglomerates entered the market by acquiring start-ups in this space.

However, the draft E-Pharmacy Rules were not made effective, nor were other rules regulating e-pharmacies framed in their place.

With the abating of the pandemic’s intensity, the issue of the legality of e-pharmacies appears to have resurfaced.

Regulatory tension

In pursuance of the Delhi High Court’s order in the Zaheer case (as discussed above), on 8 February 2023, the DCGI issued show cause notices to 20 e-pharmacy companies[12] alleging that these e-pharmacy platforms facilitated the sale and distribution of drugs without the necessary licences as required by the D&C Act and Rules. These e-pharmacy platforms were granted a 48-hour window to respond to the notice, and failure to comply would result in the DCGI assuming non-compliance and initiating appropriate actions against the said companies.

In response to this notice, the chair of the E-Pharmacy Working Group at the Federation of Indian Chambers of Commerce and Industry wrote a letter to the concerned authorities asserting that they were fully compliant with the provisions of the D&C Act and Rules and held the necessary licences for the sale and distribution of drugs through their platforms.

Conclusion

Currently, regulatory uncertainty prevails in relation to online drug sales, with no official regulations or guidelines clarifying the legal status of e-pharmacies. The Supreme Court has yet to provide a definitive pronouncement on this matter, and the Delhi High Court has listed the Zaheer case for hearing on 23 August 2023.

Meanwhile, various stakeholders continue to argue that mere compliance with licensing requirements does not adequately address the broader issues associated with online drug sales including the validation of prescriptions, the operation of illicit pharmacies, regulations concerning the sale and distribution of narcotic drugs, the prevalence of anti-competitive practices such as predatory pricing and the heightened risk of counterfeit and substandard drugs.

Several other countries such as Australia, Brazil, Canada, China, the United Kingdom and the United States have identified these risks arising from the online sale of drugs and have detailed laws governing the same. In India, the New Drugs, Medical Devices, and Cosmetics Bill 2022, which is set to replace the D&C Act, grants extensive powers to the central government to prescribe regulations for the online sale, stock and distribution of drugs. However, the bill has not yet been made law. As such, e-pharmacies find themselves operating within a regulatory grey area.

As uncertainty prevails, the resolution of the legal framework for e-pharmacies remains a matter of anticipation.