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TMI Blog1987 (4) TMI 478X X X X Extracts X X X X X X X X Extracts X X X X ..... facturers. By way of illustration, we may straightaway mention a glaring instance of such high-pricing which was brought to our notice at the very commencement of the hearing. 'Barlagan Ketone', a bulk drug, was not treated as an essential bulk drug under the Drugs (Prices Control) Order, 1970 and was not included in the schedule to that order. A manufacturer was, under the provisions of that Order, free to continue to sell the drug at the price reported by him to the Central Government at the time of the commencement of the order, but was under an obligation not to increase the price without the prior approval of the Central Government. The price which the manufacturer of Barlagan Kotone, reported to the Central Government in 1971 was Rs.24,735.68 per Kg. After the 1979 Drugs (Prices Control) Order came into force, the distinction between essential and non-essential bulk drugs was abolished and a maximum price had to be fixed for Barlagan Ketone also like other bulk drugs. The manufacturer applied for fixation of price at Rs.8,500 per Kg. The Government, however, fixed the price at Rs.1,810 per Kg. For the moment, ignoring the price fixed by the Government, we see that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacturers had also filed review petitions before the Government under paragraph 27 of the 1979 Order. The review petitions could not survive after the notifications sought to be reviewed had themselves been quashed. Nevertheless the High Court gave detailed directions regarding the manner of disposal of the review petitions by the High Court. The Union of India has preferred these appeals by Special leave of this Court against the judgment of the High Court. The case for the Union of India was presented to us ably by Shri G. Ramaswami, the learned Additional Solicitor General and the manufacturers were represented equally ably by Shri Anil Diwan. Before we turn to the terms of the Drugs (Prices Control) Order, 1979 we would like to make certain general observations and explain the legal position in regard to them. We start with the observation, 'Price-fixation is neither the function nor the forte of the Court'. We concern ourselves neither with the policy nor with the rates. But we do not totally deny ourselves the jurisdiction to enquire into the question, in appropriate proceedings, whether relevant considerations have gone in and irrelevant considerations kept out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full as it might have been. The provision for 'such enquiry as it thinks fit' is generally an enabling provision, intended to facilitate the subordinate legislating body to obtain relevant information from all and whatever source and not intended to vest any right in any one other than the subordinate-legislating body. It is the sort of enquiry which the legislature itself may cause to be made before legislating, an enquiry which will not confer any right on anyone. The third observation we wish to make is, price fixation is more in the nature of a legislative activity than any other. It is true that, with the proliferation of delegated legislation, there is a tendency for the line between legislation and administration to vanish into an illusion. Administrative, quasi-judicial decisions tend to merge in legislative activity and, conversely, legislative activity tends to fade into and present an appearance of an administrative or quasi-judicial activity. Any attempt to draw a distinct line between legislative and administrative functions, it has been said, is 'difficult in theory and impossible in practice'. Though difficult, it is necessary that the line must som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to fix prices and the obligation of the producer to charge n6 more than the price fixed. Viewed from whatever angle, the angle of general application the prospectivity of its effect, the public interest served, and the rights and obligations flowing therefrom, there can be no question that price fixation is ordinarily a legislative activity. Pricefixation may occasionally assume an administrative or quasi-judicial character when it relates to acquisition or requisition of goods or property from individuals and it becomes necessary to fix the price separately in relation to such individuals. Such situations may arise when the owner of property or goods is compelled to sell his property or goods to the Government or its nominee and the price to be paid is directed by the legislature to be determined according to the statutory guidelines laid down by it. In such situations the determination of price may acquire aquasi-judicial character. Otherwise, price fixation is generally a legislative activity. We also wish to clear a misapprehension which appears to prevail in certain circles that price-fixation affects the manufacturer or producer primarily and therefore fairness requires that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The controlled price has to retain this equilibrium in the supply and demand of the commodity. The cost of production, a reasonable return to the producer of the commodity are to be taken into account. The producer must have an incentive to produce. The fair price must be fair not only from the point of view of the consumer but also from the point of view of the producer. In fixing the prices, a price line has to be held in order to give preference or pre-dominant consideration to the interest of the consumer or the general public over that of the producers in respect of essential commodities. The aspect of ensuring availability of the essential commodities to the consumer equitably and at fair price is the most important consideration. The producer should not be driven out of his producing business. He may have to bear loss in the same way as he does when he suffers losses on account of economic forces operating in the business. If an essential commodity is in short supply or there is hoarding, concerning or there is unusual demand, there is abnormal increase in price. If price increases, it becomes injurious to the consumer. There is no justification that the producer should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of that power." It was also reiterated that the decision in Shree Meenakshi Mills' case was based on a special agreement between the parties and therefore, had no relevance to the question before them. In Prag Ice & Oil Mills v. Union of India, [1978] 3 SCC 459 a Constitution Bench of seven judges of this court had to consider the validity of the Mustard Oil (Price Control) Order, 1977, an Order made in exercise of the powers conferred upon Central Government by the Essential Commodities Act. Chandrachud, J. speaking for the court approved the observation of Beg, CJ. in Saraswati Industrial Syndicate that it was enough compliance with the Constitutional mandate if the basis adopted for price fixation was not shown to be so patently unreasonable as to be in excess of the power to fix the price. He observed "In the ultimate analysis the mechanics of price fixation has necessarily to be left to the judgment of the Executive and unless it is patent that there is hostiled discrimination against a class of operators, the processual basis of price fixation has to be accepted in the generality of cases as valid." Referring to Shri Meenakshi Mills, the learned CJ. reaffirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not arise in cases of price fixation. In Laxmi Khandsari v. State of Uttar Pradesh, [1981] 2 SCC 600 it was held that the Sugar Cane Control Order, 1966 was a legislative measure and therefore, rules of natural justice were not attracted. In Rameshchandra Kachardas Porwal v. State of Maharashtra, [1981] 2 SCC 722 it was observed that legislative activity did not invite natural justice and that making of a declaration that a certain place shall be a principal market yard for a market area under the relevant Agricultural Produce Markets Acts was an act legislative in character. The observation of Magarry, J. in Bates v. Lord Hailsha, of St. Marylebone [1972] 1 WLR 1973 that the rules of natural justice do not run in the sphere of legislation, primary or delegated, was cited with approval and two well known text books writers Paul Kackson and Wades H.W.R. were also quoted. The former had said, "There is no doubt that a minister, or any other body, in making legislation, for example, by statutory instrument or by law, is not subject to the rules of natural justice--Bates v. Lord Hailsham of St. Marylebone (supra)--any more than is Parliament itself; Edinburgh and Dalkeith Rv. v. Waucho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id for the commodity purchased? Section 3(3C) provides for the ascertainment of the price. It provides that in calculating the amount to be paid for the commodity required to be sold regard is to be had to--(a) the minimum price, if any, fixed for sugarcane by the Central Government under this section; (b) the manufacturing cost of sugar; (c) the duty or tax, if any, paid or payable thereon; and (d) the securing of a reasonable return on the capital employed in the business of manufacturing sugar. It is further prescribed that different prices may be determined, from time to time, for different areas or for different factories or for different kinds of sugar. It is to be noticed here that the payment to be made under s. 3(3C) is not necessarily the same as the controlled price which may be fixed under s. 3(2)(c) of the Act. Section 3(2)(c) of the Act, we have already seen, enables the Central Government to make an order controlling the price at which any essential commodity may be bought or sold, if the Central Government is of opinion that it is necessary or expedient so to do for maintaining or increasing supplies of any essential commodity or in securing their equitable distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX X "As a federal court has recently pointed out, there is no "bright line" between rule-making and adjudication. The most famous pre-APA attempt to explain the difference between legislative and judicial functions was made by Justice Holmes in Prentis v. Atlantic Coast Line Co. "A judicial inquiry," said he, "investigates, declares and enforces liabilities as they stand on present or past facts and under laws supposed already to exist. That is its purpose and end. Legislation on the other hand looks to the future and changes existing conditions by making a new rule to be applied thereafter to all or some part of those subject to its power." The key factor in the Holmes analysis is time: a rule prescribes future patterns of conduct; a decision determines liabilities upon the basis of present or past facts." "The element of applicability has been emphasized by others as the key in differentiating legislative from judicial functions. According to Chief Justice Burger, "Rulemaking is normally di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wide disparities in levels of income between different sections existed' it was particularly important to emphasise 'the social utility of the industry and the urgent need for extending as rapidly as possible certain minimum facilities in terms of preventive and curative medicines to the large mass of people both urban and rural'. It was said, "The concern about drug prices, therefore, really arises from the fact that many of them are essential to the health and welfare of the community; and that there is no justification for the drug industry charging prices and having a production pattern which is based not upon the needs of the community but on aggressive marketing tactices and created demand." The Government of India accepted the report of the Hathi Committee and announced in Parliament the 'Statement on Drug Policy' pursuant to which the Drugs (Prices Control) Order, 1970 was repealed and the Drugs (Prices Control) Order, 1979 was made. Paragraph 44 of the Statement on Drug Policy in 1978 dealt with 'pricing policy' and it may be usefully extracted here. It was as follows:- "The Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with or without the use of any pharmaceutical aids for internal or external use for, or in the diagnosis, treatment, mitigation or prevention of disease in human beings or animals, but shall not include-- (i) any bona fide Ayurvedic (including Sidha) or Unani (Tibb) Systems of medicine; (ii) any medicine included in the Homoeopathic system of medicine; (iii) any substance to which the provisions of the Drugs and Cosmetics Act, 1940 (XXIII of 1940), do not apply" The expressions "free reserve", "leader price", "net-worth", "now bulk drug", "pooled price," "pre-tax return", "retention price" are defined in the following manner: ""Free reserve" means a reserve created by appropriation of profits, but does not include reserves provided for contingent liability, disputed claims, goodwill, revaluation, and other similar reserves". "leader price' means a price fixed by the Government for formulations specified in Category I, Category II or Category III of the Third Schedule in accordance with the provisions of paras. 10 and 11, keeping in view the cost of or efficiency, or both, of major manufacturers of such formulations." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such bulk drug shall be the price which prevailed immediately before the commencement of this order and the manufacture of such bulk drug at a price exceeding the price which prevailed as aforesaid." This means that until the maximum sale price of an indigenously manufactured bulk drug is fixed under paragraph 3 of the 1979 Order, the price fixed under paragraph 4 of the 1970 order or the price permitted under paragraph 5 of the 1970 order was to be maximum sale price. Paragraph 3(4)(a) requires a manufacturer commencing production of the bulk drug specified in the First or Second Schedule, the price of which has already been notified by the Government, not to sell the bulk drug at a price exceeding the notified price. Paragraph 3(4)(b) provides that where the price of a bulk drug has not been notified by the Government, the manufacturer shall, within 14 days of the commencement of the production of such bulk drug, make an application to the Government in Form I and intimate the Government the price at which he intends to sell the bulk drug and the Government may, after making such an enquiry as it thinks fit, by order, fix a provisional price at which such bulk drug shall be sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut in accordance with such norms as may be specified by the Government from time to time by notification in the official Gazette in this behalf. "M.U." means make-up referred to in para. 11. "E.D." means excise duty." Paragraph 11 explains what 'Mark-up' means. Paragraph 12 empowers the Government to fix leader prices of formulations of categories I and II specified in the third schedule. Paragraph 13 empowers the Government to fix retail price of formulations specified in category III of third schedule. Paragraph 14 contains some general provisions regarding prices of formulations. Paragraph 15 empowers the Government to revise prices of formulations. Paragraph 16 provides that where any manufacturer, importer or distributor of any bulk drug or formulation fails to furnish information as required under the order within the time specified therein, the Government may, on the basis of such information as may be available with it, by order, fix a price in respect of such bulk drug or formulation as the case may be. Paragraph 17 requires the Government to maintain the Drugs Prices Equalization Account to which shall be credited, by the manufacturer, among other items, "the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny principle of natural justice. He urged that relevant information was required to be furnished and was indeed furnished by all the manufacturers in the prescribed form as required by paragraph 3(4) of the Drugs (Prices Control) Order. This information obtained from the various manufacturers was taken into account and a report was then obtained from the Bureau of Industrial Costs and Prices, a high-powered expert body specially constituted to undertake the study of industrial cost structures and pricing problems and to advise the Government. It was only thereafter that notifications fixing the prices were issued. He further submitted that paragraph 27 of the Central Order gave a remedy to the manufacturers to seek a review of the order fixing the maximum price under paragraph 3. The review contemplated by paragraph 27 in so far as it related to the notification under paragraph 3, it was submitted by the learned Additional Solicitor General, did not partake the character of a judicial or quasi-judicial proceeding. He urged that the manufacturers had invoked the remedy by way of review, but before the applications for rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is right to seek the quasijudicial remedy of review, that by necessary implication it became obvious that the Order fixing the maximum price must be considered to be quasijudicial and not legislative in character. The provision for enquiry in the first clause of paragraph 3 and the prescription of the matters to be taken into account in the second clause of paragraph 3 further strengthened the implication, according to the learned counsel. It was contended that in any case, whatever be the nature of the enquiry and the order contemplated by paragraph 3, the review for which provision made by paragraph 27 was certainly of a quasijudicial character and, therefore, it was necessary that the manufacturers should be informed of the basis for the fixation of the price and furnished with details of the same in order that they may truly and effectively avail themselves of the remedy of review. If that was not done, the remedy would become illusory. It was argued with reference to various facts and figures that the price had been fixed in an arbitrary manner and the Government was not willing to disclose the basis on which the prices were fixed on the pretext that it may involve disclosure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the maximum price at which a bulk drug may be sold, with a view to regulating its equitable distribution and making it available at a fair price. The primary object of the enquiry is to secure the bulk drug at a fair price for the benefit of the ultimate consumer an object designed to fulfil the mandate of Art. 39(b) of the Constitution. It is primarily from the consumer public's point of view that the Government is expected to make its enquiry. The need of the consumer public is to be ascertained and making the drug available to them at a fair price is what it is all about. The enquiry is to be made from that angle and directed towards that end. So, information may be gathered from whatever source considered desirable by the Government. The enquiry, obviously is not to be confined to obtaining information from the manufacturers only and indeed must go beyond. However, the interests of the manufacturers are not to be ignored. In fixing the price of a bulk drug, the Government is expressly required by the Order to take into account the average cost of production of such bulk drug manufactured by 'an efficient manufacturer' and allow a reasonable return on 'net wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the consumer public. Since the maximum price of a bulk drug is required by paragraph 3 to be notified any fresh decision taken in the proceeding for review by way of modification of the maximum price has to be made by a fresh notification fixing the new maximum price of the bulk drug. In other words, the review if it is fruitful must result in fresh subordinate legislative activity. The true nature of the review provided by paragraph 27 in so far as it relates to the fixation of maximum price of bulk drugs under paragraph 3 leader price and prices of formulations under paragraphs 12 and 13 is hard to define. It is difficult to give it a label and to fit it into a pigeon-hole, legislative, administrative or quasi-judicial. Nor is it desirable to seek analogies and look to distant cousins for guidance. From the scheme of the Control Order and the context and content of paragraph 27, the Review in so far as it concerns the orders under paragraph 3, 12 and 13 appears to be in the nature of a legislative review of legislation, or more precisely a review of subordinate legislation by a subordinate legislating body at the instance of an aggrieved person. Once we have ascertained the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the review contemplated by Paragraph 27 in relation to orders made under Paragraphs 3, 12 and 13. On the question of the scope of a Review, the learned counsel for the respondents invited our attention to Vrajlal Manilal & Co. v. Union of India & Anr., [1964] 7 SCR 97; Shivaji Nathubhai v. Union of India & Ors., [1960] 2 SCR 775; Maneka Gandhi, [1978] 2 SCR 621; Swadeshi Cotton Mills, [1981] 2 SCR 533; and Liberty Oil Mills., [1984] 3 SCR 676. We are afraid none of these cases is of any assistance to the correspondence since the court was not concerned in any of those cases with a review of subordinate legislation by the subordinate legislating body. In Vrajlal Manilal & Co. v. Union of India & Anr. (supra) the court held that the Union of India when disposing of an application for review under Rule 59 of the Mines Concession Rules functioned as a quasi-judicial authority and was bound to observe the principles of natural justice. The decision rendered without disclosing the report of the State Government and without affording reasonable opportunity to the appellants to present their case was contrary to natural justice was therefore, void. In ShivaIi Nathubhai v. Union of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even though the guidelines are not arbitrary, the guidelines are worked in an arbitrary fashion. There is no question before us that paragraph 3 prescribes any arbitrary guideline. It was, however, submitted that the guidelines were not adhered to and that facts and figures were arbitrarily assumed. We do not propose to delve into the question whether there has been any such arbitrary assumption of facts and figures. We think that if there is any grievance on that score, the proper thing for the manufacturers to do is bring it to the notice of the Government in their applications for review. The learned counsel argued that they were unable to bring these facts to the notice of the Government as they were not furnished the basis on which the prices were fixed. On the other hand, it has been pointed out in the counter-affidavits filed on behalf of the Government that all necessary and required information was furnished in the course of the hearing of the review applications and. there was no justification for the grievance that particulars were not furnished. We are satisfied that the procedure followed by the Government in furnishing the requisite particulars at the time of the hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Despite the pressing invitation of Shri Diwan to go into facts and figures and his elaborate submissions based on facts and figures, we have carefully and studiously refrained from making any reference to such facts and figures as we consider it outside our province to do so and we do not want to set any precedent as was supposed to have been done in Premier Automobiles though it was not so done and, therefore, needed explanation in later cases. One of the submissions of Shri Diwan was that in calculating "net-worth" the cost of new works in progress and the amount invested outside the business were excluded from 'free reserves' and that such exclusion could not be justified on any known principle of accountancy. We think that the question has to be decided with reference to the definition of 'free reserve' in paragraph 2(g) of the Control Order and not on any assumed principle of accountancy. This is also a question which may be raised before the Government in the review application. Referring to the 'proforma' attached to Form No. 1 of the Fourth Schedule in which are set out several items which have to be taken into account in assessing the cost of prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot agree with the submission. It is open to the subordinate legislating authority to adopt a rough and ready but otherwise not unreasonable formula rather than a needlessly intricate so-called scientific formula. We are unable to say that the subordinate legislating authority acted unreasonably in prescribing the norms in the manner it has done. While on the question on formulations, we would like to refer to the "Oration" of Dr. N.H. Antia at the 24th Annual Convocation of the National Academy of Medical Sciences where he posed the question: "Why do we produce 60,000 formulations of drugs worth Rs.2,500 crores which reach only 20% of the population when WHO recommends only 258 drugs and Rs.750 crores worth would suffice for all our people if used in an ethical manner?" A general submission of the learned counsel was that the price of formulations should not have been prescribed until the review application filed by the manufacturer in regard to the patent bulk drugs was disposed of. He submitted that the price of a formulation was dependant on the price of the bulk drug and it was, therefore, not right to fix the pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is true that the price of a bulk drug is dependent on innumerable variables. But it does not follow that the notification fixing the maximum price must necessarily be struck down as obsolete by the mere passage of time. We agree that applications for review must be dealt with expeditiously and whenever they are not so dealt with, the aggrieved person may seek a mandamus from the court to direct the Government to deal with the review application within a time framework. We notice that in all these matters, the High Court granted stay of implementation of the notifications fixing the maximum prices of bulk drugs and the retail prices of formulations. We think that in matter of this nature, where prices of essential commodities are fixed in order to maintain or increase supply of the commodities or for securing the equitable distribution and availability at fair prices of the commodity, it is not right that the court should make any interim order staying the implementation of the notification fixing the prices. We consider that such orders are against the public interest and ought not to be made by a court unless the court is satisfied that no public interest is going to be served. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that further orders of the Supreme Court were also in contemplation and such further orders could only be if appeals were preferred to the Supreme Court. We do not think that there was any doubt in anyone's mind that the matter would be taken up in appeal to the Supreme Court whichever way the writ petitions were decided. We are of the view that the undertakings given by the parties in the present cases were intended to and do continue to subsist. On the conclusions arrived at by us we have no doubt that the appeal must be allowed and the writ petition in the High Court dismissed. However, we think that it is necessary to give a direction to the Government to dispose of the review applications after giving a notice of hearing to the manufacturer. The hearing may be given within two months from today and the review application disposed of within two weeks after the conclusion of the hearing. Any information sought by the manufacturer may be given to him at the hearing in terms of what we have said in the judgment. The Union of India is entitled to the costs of the appeal and the writ petition in the High Court. It appears that although several writ petitions filed by differe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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