Understanding the Equivocation in the Law Behind Black Marketing and Hoarding – By Prachi Dutta

June 24, 2021

The Covid-19 pandemic has ravaged the population, without paying heed to one’s class and wealth. Easy access to healthcare, medicines and medical supplies, to combat the virus, has been stymied by the lack of infrastructure and lack of readily available medicines, supplies, etc. to absorb the enormous demands. During the second wave of the Covid-19 pandemic and especially during the period mid-April 2021 to mid-May 2021, everyone was overwhelmed with numerous helpless pleas for hospital beds, oxygen, medicines, injections, etc. Some were lucky enough to avail the supplies they were seeking, some, unfortunately, were not. To make matters worse, during this time and at present as well, there have been instances of people “hoarding” and “black marketing” medical equipment and supplies and this caused immense uproar, for good reason. These acts of  “black marketing”  and “hoarding” were discussed with immense gusto, albeit loosely. However, it is important to understand the legal meaning behind these words, in the face of ambiguity qua these terms as they are not readily defined, in unequivocal terms in statutes. Through case laws, notifications, orders, one can understand the connotations and meanings behind these terms but the need of the hour is to enact sound legislation qua “hoarding” and “black marketing” wherein such acts are clearly defined and commensurate punishment should be awarded for engaging in such activities.

Applicable Statutes

In regular parlance, hoarding refers to stocking up on commodities, goods and items, which often leads to a shortage in the availability of these goods. Black marketing, in the context of medical supplies and Covid-19 pandemic, means charging a premium when there is a shortage and when there is a shortage, temporary or otherwise, prices will be higher than expected and a black market occurs when the price at which a product is sold is higher than an administratively determined price.[1]

Though the terms “hoarding” and “black marketing” have not been clearly defined,  there are various statutes whose provisions are applicable to these acts and actions and these statutes provide detention/punishment for the same.

The Essential Commodities Act, 1955

The Essential Commodities Act, 1955 (“EC Act”) was enacted with the objective of controlling  the production, supply and distribution of, and trade and commerce of certain commodities. The EC Act provides that if the Central Government is of opinion that it is necessary or expedient to do so for maintaining or increasing supplies of any essential commodity or for securing their equitable distribution and availability at fair prices, or for securing any essential commodity for the defence of India or the efficient conduct of military operations, it may, by order, provide for regulating or prohibiting the production, supply and distribution thereof and trade and commerce therein[2]. An “essential commodity” would mean one that is specified in the Schedule, which may be amended by the Central Government, by adding or removing a commodity from the Schedule, if it is necessary to do so in public interest[3].

However, keeping in mind the changing needs of the population qua the Covid-19 pandemic, the Schedule was amended by adding commodities that are essential in the present pandemic. Vide S.O. 1169(E), an Order was made to regulate the production, quality, distribution, prices and other aspects of alcohol used in manufacturing hand sanitizers and treated the raw material used to make hand sanitizers as essential commodity and fixed the price of the same and vide S.O. 1197(E), the Central Government made an order to regulate the prices of masks, the melt blown non-Woven Fabric used as raw material in production of masks, masks (2ply & 3ply) and hand sanitizers for preventing infections due to COVID-19 virus.

In the EC Act, the provision for “drugs” is qua Section 12A(2)(a)(iii) which directs those offences that relate to “drugs” shall be tried in a summary way by a Judicial Magistrate of the First Class specially empowered in this behalf by the State Government or by a Metropolitan Magistrate.

The term “drug”, though not defined in the EC Act, is defined in the Drugs and Cosmetics Act, 1940, and includes, medical devices amongst medicines and other curing products[4]. 

The Drugs (Price Control) Orders, 2013

The Drugs (Price Control) Orders, 2013 (“DPCO”) was notified by the government, in exercise of its powers under the EC Act to lay down the maximum retail price at which drugs should be sold and this price is arrived at in a manner calculated in the DPCO. The National Pharmaceutical Pricing Authority, Department of Pharmaceuticals (“NPPA”), is a designated authority under the DPCO and is under the Ministry of Chemicals and Fertilizers, Government of India to enforce the provisions of the DPCO, to regulate the pricing of drugs and ensure availability and accessibility of medicines at affordable prices. Therefore, selling drugs and medical supplies, which are part of the schedule of the DPCO, in excess of the NRP prescribed by the DPCO and subsequent notifications passed by the NPPA, is a punishable offense.

A schedule, referred to as the First Schedule is appended to the DPCO, which contains the name of the drug, the Level of healthcare i.e. primary, secondary or tertiary and the dosage form and strength of that drug. Based on this schedule, the ceiling price is calculated in terms of the specified strengths and dosages, whether is it available in the domestic market , whether there is no reduction in average price to retailer with respect to the prices to retailer of the schedule formulation, whether there are less than five manufacturers for that formulation having one percent or more market share, whether there are  other strengths or dosage forms of the same scheduled formulation is available in the list of scheduled formulation and whether it is available in the schedule, etc. Under the DPCO, with effect from 01.01.2020, all medical devices have come under the price regulation and the same are monitored by the DPCO wherein the maximum retail price cannot be increased more than 10% of the maximum retail price during the preceding twelve months and if there is an increase beyond 10%, then the manufacturer shall reduce the same to the 10% for the next twelve months.

Further, as per the notification of the NPPA, released on 02.07.2020, certain critical medical equipment for the clinical management of Covid-19 pandemic were identified and the availability of the same was ensured[5]. These included life savings drugs and devices including the manufacturing and import of pulse oximeter and oxygen concentrator. The NPPA directed that the price of pulse oximeter and oxygen concentrator have to be the same as they were as on 01.01.2020 and the price cannot be increased by more than 10% in a year.

As of 04.06.2021, the NPPA has capped the trade margin at price to distributors at 70% for oxygen concentrators and all manufacturers and importers of oxygen concentrators were directed to submit the revised maximum retail price[6]. This notification was in light of the surge in demand for oxygen due to the second wave of the Covid-19 pandemic and the volatility of the price of oxygen concentrators due to the mis-match of the demand and supply of these concentrators and is in light of order dated 17.05.2021 passed by the Delhi High Court which directed the government to cap the price of oxygen concentrators and medical supplies[7]. The maximum retail price is arrived at by multiplying the price to distributor by trade margin, which cannot be more than 70%, and adding that to the applicable GST.

Prevention of Blackmarketing and Maintenance of Supplies of Essential Commodities Act, 1980

The other important statute which pertains to provisions relating to “hoarding” and “black marketing” is the Prevention of Blackmarketing and Maintenance of Supplies of Essential Commodities Act, 1980, (“PBMSEC Act”) which was enacted with the objective to provide for detention to prevent black-marketing and to maintain supplies of commodities essential to the community and for matters connected therewith.

 It is pertinent to note that the PBMSEC Act, does not specifically and clearly defined what constitutes as “black-marketing” or hoarding but solely provides for the detention of “certain persons” wherein a person can be detained in order to prevent him from acting in a manner prejudicial to maintenance of supplies of commodities essential to the community[8]. A person is seen to be acting in a prejudicial manner if he commits or instigates a person to commit an offence punishable under the EC Act or under any law relating to the control of the production, supply or distribution of, or trade and commerce in, any commodity essential to the community, is dealing in any commodity which is an essential commodity as per the EC Act or provisions that have been notified as being essential in other applicable laws, in order to making gains in any manner which may directly or indirectly defeat or tend to defeat the provisions of that Act or other law aforesaid[9].

The Epidemic Diseases Act, 1897

The Epidemic Diseases Act, 1897 (“ED Act”) was enacted to provide for the better prevention of the spread of Dangerous Epidemic Diseases. The provisions of the ED Act were invoked to help battle the Covid-19 pandemic in March 2020[10]. Any person disobeying any regulation or order made under this Act shall be deemed to have committed an offence punishable under Section 188 of the Indian Penal Code, 1860[11] (“IPC”).

The ambit has been widened and those who are caught acting in contravention of preventing the spread of Covid-19 pandemic or who indulge in other Covid-19 related malpractices, have been charged with other provisions under the IPC such as Section 240 (Cheating), Section 405 (criminal breach of trust), Section 34 (common intention), etc.

Judicial Precedents

In the face of ambiguity qua the definition of hoarding, black-marketing, it is important to turn to judicial precedents wherein Courts have attempted to deal with thus.

In the case of Rameshwar Lal Patwari v. State of Bihar[12], it was held by the Supreme Court of India (“Supreme Court”) that black marketing has at its base a shortening of supplies because blackmarket flourishes best when the availability of commodities is rendered difficult. It further stated that it has a definite tendency to disrupt supplies when scarcity exists or scarcity is created artificially by hoarding to attain illegitimate profits. Indulging in blackmarketing is conduct which is prejudicial to the maintenance of supplies.

In the case of Kamla Prasad v. Distt. Magistrate[13], the Supreme Court held that the word “hoard” in the context means to amass and deposit in secret and that is the reason why the petitioner did not display the stock position in respect of these scheduled commodities in his business premises was that he wanted to hoard and conceal them as the same would create scarcity of the commodities in the market and vitally affect the maintenance of services and supplies essential to the community.

Conclusion

In the absence of an unequivocal and solid definition of what constitutes as hoarding and black marketing, statutes and judicial precedents have to be read in a harmonious manner in order to construe the meaning and implication of it. Statutes such as the IPC, PBMSEC, EC Act contain provisions of punishment and detention qua hoarding and black marketing. However, due to the existence of the ambiguity in the law and the meaning behind these words, a lot of actions of hoarding and black marketing are unaccounted for and go unpunished, and the same gives way to illicit activities and “war profiting”. 

During the devastating second wave of the Covid-19 pandemic in India, various Courts especially the Delhi High Court and Bombay High Court came to the rescue of the people to ensure that adequate medical and oxygen supplies were allocated. Further, the Delhi High Court took a stern view of the fact that there were people indulging in hoarding and black marketing of medicines and medical equipment crucial to treat the novel coronavirus and directed the Delhi Government to take steps to prevent black marketing and hoarding of medicines and medical equipment, such as oxygen concentrators. Further, politicians were reprimanded by the Delhi High Court for hoarding essential medicines. The Supreme Court of India directed the Centre to take steps to ensure due availability of essential drugs, and directed to ensure the modalities to control the prices of essential drugs to prevent hoarding.

While the Courts came to the rescue of the people, what is essential, especially for the future, is for the enactment of a strong statute, which unequivocally defines the terms “hoarding” and “black marketing”, and contains retributive provisions for these offences. The enactment of such legislation is crucial to fill the gaps in the existing, ambiguous legislation that presently exists. The ambiguity and lack of coherence in the prevailing legislation has led to unchecked and rampant acts of hoarding and black marketing, as was the case during the second wave of the Covid-19 pandemic and may continue in the future if remedial measures and statutory enactment is not done soon.

****

The author is an Advocate practicing in New Delhi.

[1] Black marketing during the pandemic comes from longstanding, systemic flaws; The Indian Express, 13.05.2021

[2] Section 3 EC Act

[3] Section 2 EC Act

[4] (b) drugs includes— (i) all medicines for internal or external use of human beings or animals and all substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings or animals, including preparations applied on human body for the purpose of repelling insects like mosquitoes;] (ii) such substances (other than food) intended to affect the structure or any function of the human body or intended to be used for the destruction of [vermin] or insects which cause disease in human beings or animals, as may be specified from time to time by the Central Government by notification in the Official Gazette;] [(iii) all substances intended for use as components of a drug including empty gelatin capsules; and (iv) such devices intended for internal or external use in the diagnosis, treatment, mitigation or prevention of disease or disorder in human beings or animals, as may be specified from time to time by the Central Government by notification in the Official Gazette, after consultation with the Board;]

[5] Press Note released by the National Pharmaceutical Pricing Authority, Department of Pharmaceuticals, Ministry of Chemicals & Fertilizers, Government of India dated 2nd July, 2020. https://pib.gov.in/PressReleasePage.aspx?PRID=1635899

[6] Office Memorandum released by the National Pharmaceutical Pricing Authority, Department of Pharmaceuticals, Ministry of Chemicals & Fertilizers, Government of India dated 04.06.2021.

https://www.nppaindia.nic.in/wp-content/uploads/2021/06/OM-in-pursuance-to-the-Notification-dated-03.06.2021-for-Oxygen-Concentrators.pdf

[7] Ibid

[8] Section 3 of the PBMSEC Act

[9] Ibid

[10] Section 2(1) of the ED Act: When at any time the  [State Government] is satisfied that [the State] or any part thereof is visited by, or threatened with, an outbreak of any dangerous epidemic disease, the  [State Government], if  [it] thinks that the ordinary provisions of the law for the time being in force are insufficient for the purpose, may take, or require or empower any person to take, such measures and, by public notice, prescribe such temporary regulations to be observed by the public or by any person or class of persons as  [it] shall deem necessary to prevent the outbreak of such disease or the spread thereof, and may determine in what manner and by whom any expenses incurred (including compensation if any) shall be defrayed.

[11] Section 3 of the ED Act.

[12] AIR 1968 SC 1303

[13] (1975) 1 SCC 314

Disclaimer: The views or opinions expressed are solely of the author.