IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE ANTONY DOMINIC FRIDAY, THE 21ST JANUARY 2011 / 1ST MAGHA 1932 WP(C).No. 33949 of 2010(P) -------------------------- PETITIONER(S): --------------- SURESH LAL.R., MANAGING PARTNER M/S.LAKSHMI AGENCIES, DOOR NO.PMC VIII/401(1) KUNNITHOTTATHIL, CHAMBER, CHITTOOR WARD, BEHIND UTI BANK, PATHANAMTHITTA-689 645. BY SRI.P.RAVINDRAN, SENIOR ADVOCATE SMT.APARNA RAJAN RESPONDENT(S): ------------------------- 1. THE DRUGS CONTROLLER OF KERALA, THIRUVANANTHAPURAM.PIN- 695 001 2. ASSISTANT DRUGS CONTROLLER OFFICE OF THE ASSISTANT DRUGS CONTROLLER CIVIL STATION, KAKKANAD, ERNAKULAM.682 030 3. M/S.I.B.CHEMICALS & PHARMACEUTICALS LTD. NEELAM CENTRE B WING, 4TH FLOOR, HIND CYCLE ROAD, WORLI, MUMBAI-400 030. * ADDL.R4 IS IMPLEADED * ADDLR4: M/S.I.B.CHEMICALS AND PHARMACEUTICALS LTD, K.N.MATHEW BUILDING, MARKET ROAD, ERNAKUALM, PIN- 682 011 IS IMPLEADED AS ADDL.R4 VIDE ORDER DATED 16/11/2010 IN I.A.NO.15952/2010. R1 & R2 BY GOVERNMENT PLEADER SRI.T.K.ARAVINDKUMAR BABU R3 & R4 BY ADV. SRI.PREMJIT NAGENDRAN THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 21/01/2011, ALONG WITH WPC NO. 35655 OF 2010, AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: sts WP(C)NO.33949/2010 APPENDIX PETITIONER'S EXHIBITS: P1 COPY OF THE LICENSE VALID UPTO 17/8/2011. P2 COPY OF THE COMMUNICATION DATED 2/3/2009. P3 COPY OF THE APPOINTMENT ORDER DATED NIL. P4 COPY OF THE INVOICE SHOWING SUPPLY OF MEDICINE DATED 1/5/09. P4(A) COPY OF THE INVOICE SHOWING SUPPLY OF MEDICINE DATED 4/5/09. P4(B) COPY OF THE INVOICE SHOWING SUPPLY OF MEDICINE DATED 20/5/09. P4(C) COPY OF THE INVOICE SHOWING SUPPLY OF MEDICINE DATED 20/5/09. P4(D) COPY OF THE INVOICE SHOWING SUPPLY OF MEDICINE DATED 4/5/09. P5 COPY OF THE REQUEST DATED 4/8/09. P6 COPY OF THE COMMUNICATION DATED 10/2/09. P7 COPY OF THE COMPLAINT DATED 4/8/09. P8 COPY OF THE COMPLAINT DATED 24/9/09. P8(A) COPY OF THE COMPLAINT DATED 26/5/10. P8(B) COPY OF THE COMPLAINT DATED 10/7/2010. P9 COPY OF THE REQUEST DATED 1/10/2010. P10 COPY OF THE JUDGMENT IN WPC.NO.6876/09 DATED 14/12/09. P11 COPY OF THE CERTIFICATE ISSUED BY THE AKCDA DATED 8/4/09. P11(A) COPY OF THE CERTIFICATE ISSUED BY THE AKCDA DATED NIL RESPONDENT'S EXHIBITS: R3(A) COPY OF THE AUTHORIZATION LETTER NO.A-8764/2009/DC DATED 29/07/2010 (18/09/2010) ISSUED BY THE FIRST RESPONDENT. R3(B) COPY OF THE LETTER SUBMITTED BY THE PETITIONER BEFORE THE FIRST RESPONDENT DATED 05/10/2010. R3(C) COPY OF THE LETTER SUBMITTED BY THE PETITIONER BEFORE THE FIRST RESPONDENT DATED 09/12/2010. /TRUE COPY/ P.A.TO.JUDGE sts 'C.R.' ANTONY DOMINIC, J. ``````````````````````````````````````````````````````` W.P.(C) Nos.33949, 35655, 36260 & 37014 of 2010 ``````````````````````````````````````````````````````` Dated this the 21st day of January, 2011 J U D G M E N T The issues raised in these writ petitions are common and, therefore, these cases were heard together and are disposed of by this common judgment. For convenience, W.P.(C) No.33949/2010 is adopted as the leading case. 2. Petitioner is a wholesale dealer in drugs, who has obtained Ext.P1 licence issued under Rule 61 of the Drugs and Cosmetics Rules, 1945. The third respondent is a manufacturer of medicines, who, by Exts.P2 and P3, has appointed him as a stockist for Pathanamthitta District. Ext.P4 sale invoices are produced to show that medicines have been supplied in the past. Petitioner states that subsequently, the third respondent discontinued supply of medicines and Ext.P5 request made to continue the supply W.P.(C) No.33949/2010 & connected cases : 2 : was not responded. It is stated that complaining of the above, they made Ext.P6 representation to the second respondent. Thereupon, they were directed to move the first respondent. Accordingly, they submitted Exts.P7 and P8 series of complaints to the first respondent. There was no response to those complaints and it is in these circumstances, this writ petition has been filed. 3. Prayer sought in the writ petition is to direct respondents 1 and 2 to require the third respondent manufacturer to supply medicines to the petitioner in terms of the petitioner's licence as a wholesale dealer. The main contention raised by the learned senior counsel appearing for the petitioner is that, under clause 18 of the Drugs (Prices Control) Order, 1995, manufacturer cannot refuse to sell or supply medicines to a wholesale dealer. In support of this contention, learned senior counsel also relied on the judgments of this Court in W.P.(C) No.6876/2009 and W.P. (C) No.36675/2009. W.P.(C) No.33949/2010 & connected cases : 3 : 4. The third respondent has filed a counter affidavit, in which, the third respondent submits that like other manufacturers, it has its own procedure in the matter of distribution of medicines and sales not only in Kerala, but throughout India. It is stated that the company appoints Clearing and forwarding agents to stock their products, despatch and invoice the goods to the stockists, collect payment for the same and deposit the collection in the company's account. It is stated that the company does not have any direct sales outlet in Kerala. It has two clearing and forwarding agents in Kerala, one for southern districts located at Ernakulam catering to the requirements of Thiruvananthapuram to Ernakulam. Similarly, it has another clearing and forwarding agent who is catering the requirements of the remaining parts of the State. It is stated that the stockists avail of their requirements from the clearing and forwarding agents and that the wholesale dealers availed of their supply from the stockists. According to the company, W.P.(C) No.33949/2010 & connected cases : 4 : it is free to regulate its supply and appoint stockists and none has any right to demand direct supply from the manufacturer itself. As far as the petitioner's claim that it is a stockist is concerned, the company states that it has terminated the arrangement telephonically. 5. In the reply affidavit filed by the petitioner, he has reiterated his contention in the writ petition. As far as the claim of the company of having terminated the stockist agreement is concerned, that has been denied by the petitioner. 6. In the light of the contentions raised by both sides, the only issue that arise for consideration is whether the claim of the petitioner that in the light of clause 18 of the Control Order, the company cannot refuse supply to a wholesaler duly licenced under the Act and the Rules is sustainable or not. 7. Clause 18 of the Drugs (Price Control) Order issued under the provisions of Section 3 of the Essential Commodities Act, 1955, reads as under:- W.P.(C) No.33949/2010 & connected cases : 5 : “ 18. Manufacturer, distributor or dealer not to refuse sale of drug. Subject to the provisions of the Drugs and Cosmetics Act, 1940 (23 of 1940) and the Rules framed thereunder - (a) no manufacturer or distributor shall withhold from sale or refuse to sell to a dealer any drug without good and sufficient reasons; (b) no dealer shall withhold from sale or refuse to sell any drug available with him to a customer intending to purchase such drug.” 8. This provision shows that as far as a manufacturer or distributor is concerned, subject to the provisions of the Drugs and Cosmetics Act, 1940 and the Rules framed thereunder, manufacturer or distributor shall not withhold from sale or refuse to sell to a dealer any drug, without good and sufficient reasons. The word 'distributor' has been defined in clause 2(e) as a distributor of drugs or his agent or a stockist appointed by a manufacturer or an importer for stocking his W.P.(C) No.33949/2010 & connected cases : 6 : drugs for sale to a dealer. Similarly, 'dealer' has been defined under clause 2(d) as a person carrying on the business of purchase or sale of drugs whether as a wholesaler or retailer and whether or not in conjunction with any other business and includes his agent. Similarly, 'manufacturer' has been defined in clause 2(m) as any person who manufactures a drug. The provision of clause 18(a) of the Control Order prevents a manufacturer or his distributor from withholding supplies. This rule makes it clear that the manufacturer has the right to appoint distributor, the definition of which, includes stockist also. Further, the Rule provides that a manufacturer or his stockist shall not withhold from sale or refuse to sell to a dealer, which expression again includes retail and wholesale dealers. This obligation of the manufacturer and distributor is qualified with the words 'without good and sufficient reasons'. Therefore, if a manufacturer or distributor has good and sufficient reasons, they are entitled to refuse sale of their products to a wholesaler or a retailer. Question is whether a W.P.(C) No.33949/2010 & connected cases : 7 : commercial arrangement made by a manufacturer amounts to a good and sufficient reason to refuse supply to a dealer, who demands supply in violation of such arrangement. I have not been shown any provision either in the Drugs and Cosmetics Act or the Essential Commodities Act or in any Rules or Orders issued under these enactments, which restricts the right of a manufacturer to channelise his supply to the market in the manner they consider appropriate. Further, as already noticed, manufacturer is entitled to appoint stockists also. If that be so, it has to be recognised that the commercial right of a manufacturer to appoint distributors or stockists is well recognised. Consequently, the manufacturer has to be held entitled to regulate his supply through a distributor or stockist. If so, refusal of a manufacturer to supply goods directly to a wholesaler or a retailer for the reason that the supplies are channelled through a distributor or stockist has to be recognised as a good and sufficient reason as contemplated in Clause 18 of the Control Order. W.P.(C) No.33949/2010 & connected cases : 8 : 9. As far as Ext.P10 judgment is concerned, in my view, this judgment also does not militate against the aforesaid interpretation of clause 18 of the Control Order. From Paragraph 7 of Ext.P10 judgment being relevant reads as under:- “ 7. Clause (2)(1) of the Control Order defines manufacture and clause (m) states that 'manufacturer' means any person who manufactures a drug. Clause 2(e) provides that 'distributor' means distributor of drugs or his agent or a stockist appointed by a manufacturer or an importer for stocking his drugs for sale to a dealer. 'Dealer' means, in terms of clause 2(d) of the Control Order, a person carrying on the business of purchase or sale of drugs, whether as a wholesaler or retailer and whether or not in conjunction with any other business, and includes his agent. With this, adverting to clause 18, it could be seen that the said provision enjoins that subject to the provisions of the D & C Act and the Rules framed thereunder, no manufacturer or W.P.(C) No.33949/2010 & connected cases : 9 : distributor shall withhold from sale or refuse to sell to a dealer any drug without good and sufficient reasons. The question raised is as to whether this obligation is satisfied by the manufacturer, pointing out different stockists that it has in terms of its commercial contacts. 8. A close reading of clauses (1) and (m) would show that manufacturer does not include a stockist. Manufacturer is one who carries out the process of manufacture in terms of clauses 2(1), i.e., in relation to any drug, carries out any process which ultimately provide any drug with a view to its sale and distribution. The process of distribution by the manufacturer, through any of its stockists, is not part of the regulations made through the Control Order issued under the Essential Commodities Act. 'Distributor' in terms of clause 2(e) of the Control Order is the distributor who is eligible in terms of clause 18(a) for statutory protection from being deprived of supply of drugs. 'Distributor' as defined in clause 2(e) of the W.P.(C) No.33949/2010 & connected cases : 10 : Control Order manes a distributor of drugs or his agent or a stockist appointed by the manufacturer. Therefore, even if manufacturer has a stockist, he may be a distributor in the company. But the appointment of stockists does not take away the statutory liability of the manufacturer to effect supply to satisfy the mandate of clause 18(a), which obliges that a manufacturer shall not withhold from sale or refuse to sell to a dealer any drug without good and sufficient reasons. 9. The petitioners are dealers as defined in clause 2(d) of the Control Order. They carry on the business of purchase and sale of drugs on wholesale basis. They, therefore, are dealers for the purpose of the Control Order. If that were so, the petitioners are entitled to supply of drugs by the manufacturers. Even if the manufacturer shows the availability of stockists as good and sufficient reasons to refuse sale directly to the petitioners/dealers, the agency W.P.(C) No.33949/2010 & connected cases : 11 : relationship between the stockists and manufacturer cannot, in any way, result in deprivation of the petitioners, who are dealers, from the entitlement to supply, which is protected by clause 18 of the Control Order. Therefore, the petitioners are clearly entitled to supply of drugs. Otherwise, it would be in contradiction with clause 18 of the Control Order except in cases where there is good and sufficient reasons. 10. The relationship of the stockists and the manufacturer does not entitle the manufacturer to refuse supply to the petitioners. It would, at the most, enable it to require that the petitioners have to buy from the stockists with reference to any term of the commercial deal between the manufacturer and its stockists, if any. It also needs to be noted that the requirement to supply the drugs form part of the statutory duties in terms of the Control Order which is issued under the Essential Commodities Act. 11. The Drugs Controller of the W.P.(C) No.33949/2010 & connected cases : 12 : Government of Kerala is present before Court today and he has explained the stand of the department in as much as the Drugs Controller cannot be made to negotiate between the manufacturer or its stockists and the dealers who want the supply. The possession of licence in terms of the D & C Act and Rules, which entails a person to be treated as a dealer for the purpose of the Control Order, does not ipso facto result in his being a stockist of the manufacturer. The appointment of stockists is with the exclusive commercial domain of the manufacturer and the Drugs Controller is not liable or entitled to interfere with that matter in any manner. At the same time, any failure of the manufacturer to supply to a dealer in terms of clause 18 of the Control Order is a matter, on which, the Drugs Controller would be entitled to exercise authority and in view of that clause, he is duty bound to take such action. However, the manufacturer has necessarily to be heard as to any sufficient or good reason W.P.(C) No.33949/2010 & connected cases : 13 : for it for refusing supply to any particular dealer. With the aforesaid, these writ petitions are ordered directing that the official respondents will act in terms of what is stated above and would look into complaints of violations of clause 18 of the Control Order but shall not, in any manner, interfere with the contractual obligations of the manufacturer and stockists or in any manner deal with the request of any dealer for being the stockist of any manufacturer. It is clarified that the supply by the manufacturer to the dealers will be in terms of their entitlement as per the statutory provisions. These writ petitions are ordered accordingly.” 10. A close reading of the aforesaid paragraphs of the judgment shows that this Court has held, (1) That the appointment of stockist does not take away the statutory liability of the manufacturer to effect supply to satisfy as mandated in clause 18(a) of the Control Order. W.P.(C) No.33949/2010 & connected cases : 14 : (2) That the existence of stockist would at the most enable the manufacturer to require that the dealers have to buy from stockists with reference to any term of commercial deal between manufacturer and its stockists. (3) That the appointment of stockists is within the exclusive commercial domain of the manufacturer and the Drugs Controller is not entitled to interfere with the same in any manner. (4) That the Drugs Controller shall not interfere with the contractual obligations of the manufacturer and stockist or in any manner deal with a request of any dealer for being the stockist of any manufacturer. 11. In my view, the effect of the judgment is that the manufacturer has the liability to supply directly to a dealer, in cases where the manufacturer directly supplies the products to the dealers. This does not mean that the manufacturer is under an obligation to supply its products to any dealer, irrespective of the contractual arrangements made by them by W.P.(C) No.33949/2010 & connected cases : 15 : appointing stockists or distributors. The principles laid down in this judgment have been followed in the judgment in W.P. (C) No.36675/2009 also. 12. Now that the scope of clause 18 of the Control Order has been understood as above, all that is required is that the first respondent, the Drugs Controller, before whom Exts.P7, P8, P8(a), P8(b) and P8(c) complaints have been filed by the petitioner, should take up those complaints with notice to the parties concerned and decide on the complaints raised. Such decision shall be taken on the complaints made by the petitioners as expeditiously as possible and at any rate, within six weeks from the date of production of a copy of this judgment. 13. In so far as W.P(C) Nos. 35655, 36260 and 37014 of 2010 are concerned, similar complaints filed before the Drugs Controller are pending. These complaints shall also be disposed of, with notice to the parties concerned and within the time specified above. W.P.(C) No.33949/2010 & connected cases : 16 : 14. Until a decision is taken as above, the interim orders passed in these writ petitions will continue. 15. Parties shall produce a copy of this judgment and writ petitions before the Drugs Controller for compliance. Writ petitions are disposed of as above. Sd/- (ANTONY DOMINIC, JUDGE) aks // True Copy // P.A. To Judge