2016 (10) TMI 1337 - SC - Indian Laws

Interpretation and application of Paragraph 7 of the DPCO 1995 and Paragraphs 8 and 9 of the DPCO 1995 - flexibility available to the Central Government in fixing the retail price and ceiling price of formulations and the rigidity expected by the statutory Order - Validity of Notification dated 13th July, 1999 issued by the Central Government under Paragraph 7 of the Drugs (Prices Control) Order, 1995 - notifications issued by the Central Government on 12th July, 2000, 12th July, 2001, 12th July, 2002 and 11th July, 2003 re-notifying the norms prescribed by notification dated 13th July, 1999 issued under Paragraph 7 of the DPCO 1995 - inclusion of the bulk drug Diosmin in the First Schedule to the DPCO 1995 - ceiling price fixed by the Central Government in the notification dated 20th July, 1998 of the Diosmin formulation - ceiling price of the Diosmin formulation could have been fixed under Paragraph 9 of the DPCO 1995 without first fixing the maximum sale price of the bulk drug Diosmin under Paragraph 3 of the DPCO 1995 - Alternative remedy. HELD THAT - The DPCO 1995 came into operation on 6th January, 1995. Ordinarily therefore the first notification under Paragraph 7 thereof ought to have been issued in July 1995, or soon thereafter. Perhaps the Masood Committee was constituted on 24th April, 1995 for this purpose and initially it was required to submit its Report on or before 30th June, 1995 but time was extended till 31st August, 1995 - Whatever be the position, the fact is that the Central Government did not notify the norms on a yearly basis for four years 1995-1996, 1996-1997, 1997-1998 and 1998-1999. We are really concerned with the default for this period. The NPPA was set up on 29th August, 1997 and the Jharwal Committee was set up on 8th October, 1998 more than two years and three years respectively after the DPCO 1995 was issued. The purpose of setting up the Jharwal Committee was to revise the norms applicable since 15th July, 1993. Pursuant to the Report of the Jharwal Committee the Central Government did issue a notification on 13th July, 1999 under Paragraph 7 of the DPCO 1995. On the issue under consideration, we are presently not concerned with the period 1999 onwards till 2004. Paragraph 7 of the DPCO 1995 gives the formula for arriving at the retail price of a formulation. The application of the formula is undoubtedly mandatory and the Central Government cannot contend that the retail price of a formulation can be fixed de hors the formula. The question is whether the norms mentioned in Paragraph 7 of the DPCO 1995 are required to be prescribed every year even if there is no perceived qualitative or quantitative change in them - The purpose of determining and prescribing the norms every year is limited to the requirement of fixing the retail price of formulations in terms of the formula given in Paragraph 7 of the DPCO 1995. The Central Government set up the Masood Committee in April 1995 precisely for this purpose. However its work was stymied by the drug industry through its non-cooperation. There are several reasons that can be culled out from the Report of the Masood Committee for the Central Government not determining and prescribing the norms in 1995 and thereafter for the next three years. Firstly, according to the Masood Committee the drug industry had been provided a sufficient cushion by the acceptance of the recommendations of the Sankaran Committee. Under the circumstances continuing with the norms for conversion cost and packing charges prescribed under the DPCO 1987 would not have disadvantaged the manufacturers/formulators in any manner - Secondly, the packing material ceilings had been recently upwardly revised from 7th July, 1994 and the manufacturers/formulators could take advantage of the cost of packing material on actuals. Surely, this was beneficial to them - Thirdly, according to the Masood Committee with high production levels and better capacity utilization as well as new technological processes, the process loss on raw materials and packing material ought to have come down. But since the drug industry did not provide necessary information through the questionnaire sent to the drug industry and the companies, an ad hoc reduction in the existing norm for process loss fixed by the Sankaran Committee was not recommended by the Masood Committee - Fourthly, the Masood Committee noted that there was a decrease in total formulation activity coming under price control from 70% under the DPCO 1987 to 50% under the DPCO 1995 and uniform MAPE of 100% under the DPCO 1995 as against 75% and 100% MAPE under the DPCO 1987. Even this was advantageous to the manufacturers/formulators. We may recall that the Sankaran Committee had noted that the norms for cost of packing material were not prescribed from 1979 onward. Far from objecting to this, the drug industry had itself requested the Sankaran Committee to permit the cost of packing material to be taken on actuals. The Sankaran Committee accepted this suggestion while taking into account the inherent difficulty in prescribing any norm for cost of packing materials - The notification dated 15th July, 1993 prescribed norms only for conversion cost and packing charges. No manufacturer or formulator made any grievance or complaint regarding the failure of the Central Government to prescribe the cost of packing material as a norm. The situation has not changed at all over the years. The silence of the drug industry continued as is evident from the fact that even 15 years later a notification was issued by the Central Government on 11th August, 2004 under Paragraph 7 of the DPCO 1995 prescribing the norms for conversion cost, packing charges and process loss of raw materials (other than packing materials in conversion and packing) and process loss of packing materials in packaging - but not for cost of packing material as a norm. Despite this, we were told by learned Counsel appearing for the parties that there has been no dispute about price fixation since 2004 due to the absence of a norm for cost of material - it does appear to us that the drug industry was content with being allowed to take the cost of packing material on actuals rather than insisting on the Central Government issuing a notification prescribing the norms for cost of packing material. Thus, the ceiling price fixed by the BICP on 7th July, 1994 and thereafter revised by the NPPA in February 1998 in respect of packing materials has not been questioned (let alone challenged) by anybody. The action of a repository of power is also amenable to judicial review if it is contrary to or violates the mandatory requirement of a subordinate legislation. Therefore, if the Central Government does not adhere to the formula given in Paragraph 7 of the DPCO 1995 and fixes the retail price or ceiling price of formulations without following the formula laid down, the notification issued by the Central Government under Paragraph 8 or Paragraph 9 of the DPCO 1995 (as the case may be) is liable to quashed as being contrary to law. However, no instance has been pointed out to us compelling us to use our power of judicial review and quash the notifications under consideration. Alternative remedy - HELD THAT - We have no doubt that if any manufacturer or formulator had taken the trouble of preferring a revision or review application, all necessary material would have been made available to the complainant for an effective representation. We are satisfied that none of the parties before us was precluded by circumstances from preferring a revision or review for corrective measures in relation to the retail price or ceiling price of any particular formulation - in fact, we are told by the learned Solicitor General that some of them did - Strictly speaking, in view of the availability of an alternative and efficacious remedy available under the DPCO 1995 read with the decision of this Court in Cynamide India Ltd. the writ petitions filed by the manufacturers and formulators before us ought not to have been entertained by the concerned High Courts, but we leave it at that. In matters where public interest is involved, the Court ought to be circumspect in granting any interim relief. The consequence of an interim order might be quite serious to society and consumers and might cause damage to public interest and have a long term impact. We make it clear that it is not our intention to suggest to any Court how and in what circumstances interim orders should or should not be passed but it is certainly our intention to make it known to the Courts that the time has come when it is necessary to be somewhat more circumspect while granting an interim order in matters having financial or economic implications. Various questions raised, are answered as below Validity of Notification dated 13th July, 1999 issued by the Central Government under Paragraph 7 of the Drugs (Prices Control) Order, 1995 - the notification prescribed the norms for conversion cost, packing charges and process loss of raw materials (other than packing materials in conversion) and packing and process loss of packing materials in packaging - whether the notification was issued mechanically and without any application of mind or is it valid in law? - HELD THAT - The notification is valid and that the notification was not issued mechanically or without any application of mind. Notifications dated 12th July, 2000, 12th July, 2001, 12th July, 2002 and 11th July, 2003 issued by the Central Government under Paragraph 7 of the Drugs (Prices Control) Order, 1995 - the notifications re-notified the norms prescribed on 13th July, 1999 - whether the notification were issued mechanically, without any application of mind and without re-determining the norms every year as required by the Drugs (Prices Control) Order, 1995? - HELD THAT - The notifications are valid and were not issued mechanically or without any application of mind and that it was not necessary to re-determine the norms every year. Various notifications issued by the Central Government fixing the retail price or ceiling price of formulations under Paragraphs 8 and 9 (as the case may be) of the Drugs (Prices Control) Order, 1995 - whether the notifications did not determine the norm for cost of packing material as required by Paragraph 7 of the Drugs (Prices Control) Order, 1995 are valid in law? - HELD THAT - Answered in the affirmative. Whether fixing the retail price of a formulation under Paragraph 8 of the Drugs (Prices Control) Order, 1995 without first fixing the sale price of a bulk drug under Paragraph 3 of the Drugs (Prices Control) Order, 1995 utilized in the manufacture of a formulation is valid in law? - HELD THAT - Answered in the affirmative. The appeals filed by the Union of India are allowed.

Summary

Issues Involved:
1. Validity of the notification dated 13th July, 1999, under Paragraph 7 of the Drugs (Prices Control) Order, 1995.
2. Validity of the notifications dated 12th July, 2000, 12th July, 2001, 12th July, 2002, and 11th July, 2003, re-notifying the norms prescribed on 13th July, 1999.
3. Validity of various notifications fixing the retail price or ceiling price of formulations without determining the norm for the cost of packing material.
4. Validity of fixing the retail price of a formulation without first fixing the sale price of a bulk drug under Paragraph 3 of the Drugs (Prices Control) Order, 1995.

Detailed Analysis:

1. Validity of the notification dated 13th July, 1999:
The notification dated 13th July, 1999, was challenged on the grounds of being issued mechanically and without any application of mind. The Supreme Court examined the antecedent materials, including the Reports of the Masood Committee and the Jharwal Committee, and concluded that the Central Government had initiated a detailed exercise for prescribing the norms. Despite the non-cooperation from the drug industry, the Central Government relied on available materials and issued the notification. The Court held that the notification was valid and was not issued mechanically or without any application of mind.

2. Validity of the notifications dated 12th July, 2000, 12th July, 2001, 12th July, 2002, and 11th July, 2003:
These notifications re-notified the norms prescribed on 13th July, 1999. The challenge was that they were issued mechanically without re-determining the norms every year as required by the DPCO 1995. The Court noted the non-cooperation from the drug industry in providing necessary data and the statutory obligation on the Central Government to notify the norms every year. The Court concluded that the re-notification of the prescribed norms was not mechanical or without any application of mind and was justified under the circumstances. The notifications were held to be valid.

3. Validity of various notifications fixing the retail price or ceiling price of formulations without determining the norm for the cost of packing material:
The Court noted that the norms for the cost of packing material had not been prescribed since 1979 and that the drug industry had been content with being allowed to take the cost of packing material on actuals. The Court concluded that there was no necessity to fix the cost of packing material as a norm and that the notifications issued under Paragraph 7 of the DPCO 1995 from 1999 onward were not fatally flawed. The notifications were held to be valid.

4. Validity of fixing the retail price of a formulation without first fixing the sale price of a bulk drug under Paragraph 3 of the DPCO 1995:
The Court rejected the contention that the retail price or ceiling price of a formulation could not be fixed without first fixing the maximum sale price of the bulk drug utilized in the formulation. The Court held that there is no obligation on the Central Government to fix the maximum sale price of every bulk drug, and the retail price or ceiling price of a formulation can be fixed regardless of whether the bulk drug's sale price has been fixed. The notifications were held to be valid.

Conclusion:
The Supreme Court allowed the appeals filed by the Union of India, setting aside the impugned judgments and orders. The Court dismissed the appeals filed by Dr. Reddy's Laboratories Ltd. and held that the notifications issued under Paragraph 7 of the DPCO 1995 were valid and issued with due application of mind. The Court also emphasized the need for circumspection in granting interim relief in matters involving public interest and economic implications.