Supreme Court said on Thursday that unregulated clinical trials of new drugs were causing "havoc" in the country as it ordered the health ministry to monitor any new applications for tests.
The comments were made during a hearing on a petition detailing deaths and health problems caused by clinical trials carried out on Indians, often without their knowledge or consent.
"Uncontrolled clinical trials are causing havoc to human life," Justice RM Lodha observed.
"There are so many legal and ethical issues involved with clinical trials and the government has not done anything so far."
The judge, who has previously stated that Indians are being used like "guinea pigs", ordered the health secretary to monitor all new applications for trials from pharmaceutical companies.
Low costs, weak laws and inadequate enforcement and penalties have made India an attractive destination for the tests, activists say.
The petitioners in the public interest litigation case - a group of doctors and a voluntary organisation - claim several patients seeking medical help in the central state of Madhya Pradesh were used in drug tests.
The groups say they have compiled and submitted a report on more than 200 cases in which patients were subjected to trials to check the efficacy of various new treatments without their permission.
Drug trials are an essential step for pharmaceutical companies in order to win regulatory approval to bring new drugs to market.
Earlier this year, 12 doctors were accused of conducting secret trials on children and patients with learning disabilities. They paid fines of less than $100 each.
Faced with mounting criticism, the Indian Council of Medical Research in 2011 sought proposals from doctors and health activists on new draft guidelines for compensation for people used in drug trials.