Union Of India vs Glaxo India Ltd. & Anr

2) The Respondent-Company is engaged in manufacture and sale of three bulk drugs, namely, Betamethasone Alcohol (B.A.), Betamethasone 17 valerate (B.V.) and Betamethasone di Sodium Phosphate (B.P.), and various formulations based on these bulk drugs. They were sold at the price that was declared by the Respondent-Company under the Drugs (Price Control) Order, 1970 [in short, "DPCO 1970"]. The Central Government promulgated the Drug (Price Control) Order, 1979, [in short, "DPCO 1979"], replacing DPCO 1970 which included the above mentioned bulk drugs in Schedule II to the order. The Central Government is vested with the power under Para 3(i) of DPCO 1979 to fix the maximum sale price of indigenously manufactured bulk drugs in First or Second Schedule by issuing a notification in the official gazette. Sub-Para 3(2) provides that while fixing the price of a bulk drug, the 2 Government may take into account the average cost of production of such bulk drug manufactured by an efficient manufacturer and allow a reasonable return on net worth. Sub-Para 3(3) prohibits any person from selling a bulk drug at a price exceeding the price fixed under sub-para(1) and other local taxes, if any, payable.

3) In exercise of the powers so conferred, the Central Government had fixed the maximum price of the above mentioned bulk drugs vide its order dated 12.05.1981.

6) The Division Bench of the High Court, by its judgment and order dated 31.08.1987, disposed of the writ petition. While doing so, the Court did not quash the impugned price fixation order dated 20.11.1986 (made after the first review) passed by the Central Government, but directed the Respondent-Company to file another review petition before the Central Government for reconsideration of the price fixed by impugned price fixation order and the Central Government to condone the delay and consider the review petition on merits.

8) Aggrieved by the demand so made by the Central Government vide its letters dated 18.06.1990 and 16.11.1990, the Respondent-Company filed C.W.P. No. 2170 of 1990 before the High Court of Delhi, inter alia, questioning the legality and validity of the demands raised by the Central Government and for its deposit into DPEA. The main issues raised therein were that the demand was contrary to the directions issued by the High Court in CWP No.1551 of 1981. Secondly, the demands were in violation of para 7(2)(a) of the DPCO 1979 and further, the demands were not based on the difference in prices of "common selling prices" and "retention prices" of bulk drugs, but were based on the difference between the "common selling prices"

The Court further observed that even though the DPCO 1979 contained statutory provisions for fixation of formulation prices, even if it is violated, the respondent company would still be entitled to retain the excess amount over the statutory maximum price and the only option available to the Central Govt. was to initiate criminal proceedings. The High Court directed the appellants to raise demands on the basis of the revised prices of the bulk drugs as notified on 02.01.1989 8 and for the purpose of Para 7(2) (a) of DPCO 1979, determine the excess amount not on the basis of the prices of the formulations but on the basis of the prices of bulk drugs used by the respondent company in its formulations. The correctness of the said judgment and order is called in question by the Union of India in this appeal.

The Central Government, in exercise of the powers conferred under para 3(1) of the Price Control Order 1979 by its order dated 12.05.1981 had fixed the maximum selling prices of these bulk drugs manufactured and sold by Respondent Company. After receipt of the said order, the Respondent-Company had filed a Review Petition dated 23.06.1981. May be prior to or after the receipt of this representation, the Central Government, by its letter dated 29.06.1981, had informed the Respondent-Company of its liability to pay into DPEA the difference between the prices that the company was enjoying under Prices Control Order 1970 and the prices as notified by the Central Government with effect from 12.05.1981. The Respondent-Company filed CWP 1551 of 1981 before the High Court of Delhi, inter alia, seeking a writ of certiorari of the notification issued by the Central Government on the ground that the notification issued by the Central Government fixing the maximum selling prices of the three bulk drugs manufactured and sold by them as illegal, arbitrary and unconstitutional. The High Court, while issuing notice of the 25 petition to the Respondents therein, granted the interim order dated 01.07.1981, inter alia, staying the implementation of any formulation prices for the three bulk drugs. On a later date, the High Court, after recalling its earlier order dated 01.07.1981, granted stay of the implementation of the bulk drug prices notified by the Central Government by its order dated 12.05.1981. Since the Central Government passed yet another order dated 20.11.1986, the Respondent-Company by way of amendment of the relief sought in the writ petition, questioned the said order also. The High Court, by its order dated 31.08.1987, disposed of the petition with certain observations and directions, which we have already noticed in extenso. Pursuant to the directions so issued, the Respondent- Company filed review petition dated 09.03.1988 to review the order dated 20.11.1986. The Central Government, by its order dated 02.01.1989, in exercise of its power conferred by Sub-para (1) of para 3 of the Control Order 1987 and in supersession of the order dated 12.05.1981 in so far as the three bulk drugs, has fixed the maximum price at which the indigenously manufactured drugs should be sold. After issuing the aforesaid notification, the Government by its letter dated 18.06.1990, after referring to the 26 Judgment of Delhi High Court dated 31.08.1987, has stated that the Respondent-Company has not been authorized to retain the amounts over charged by the company. It is also stated that the prices of the bulk drugs fixed on 20.11.1986 based on the direction issued by the High Court is also not disturbed and the Court is also authorized to fix the prices of the formulations. Accordingly, the Central Government, vide their letters dated 18.06.1990 and 16.11.1990, made a tentative demand of `66.35 crores, which was subsequently revised based on the data made available by the Respondent Company to `71.21 crores payable by the Respondent- Company to be deposited into DPEA. These were those orders/letters which were impugned by the Respondent-Company by filing CWP 2170 of 1990 before the High Court.

19. The writ petition is disposed of accordingly with no order as to costs. It is made clear that the interim stay orders are vacated and the department will be free to implement the order dt. 20-11-1986 as well as to proceed to fix the prices for the petitioner's drug formulation, subject to the outcome of the procedure indicated in the previous para."

27). The aforesaid notification is issued by the Central Government in supersession of the earlier Notification issued by the Government of India No. S.O. 373(E) dated the 12th May, 1981. By this notification, the Government has fixed the maximum price at which indigenously manufactured bulk drugs shall be sold by the Respondent-Company and others. According to the Revenue, the notification is prospective and the notification issued earlier would hold the field till the impugned notification is issued. However, it is the stand of the Respondent-Company that the notification dated 02.01.1989 is retrospective in its operation and relates back to first notification issued by the Central Government dated 12.05.1981.

34) Therefore, firstly, it cannot be said that the Central Government while considering the review petition filed by the Respondent-Company had disregarded the direction issued by the Delhi High Court in its first judgment. Secondly, the contention of the respondent-company that the price fixation order of 02.01.1989 was the result of decision taken by the Central Govt. on the review petition filed by the respondent-company and therefore, the demands raised as per the price fixation order dated 20.11.1986 had to be revised according to the price fixation order dated 02.01.1989, cannot be accepted. We also add, since the notification dated 40 02.01.1989 fixing prices of bulk drugs is prospective, the earlier notification would operate during the intervening period.

3. Liability in respect of two packs of formulations indicated at S.No.17 and 18 (sic.) would be communicated to you after the details of the price prevailing on 12th May, 1981 and the basis thereof are communicated to the Government.

Yours faithfully, Sd./-

(J.L. Sharma) UNDER SECRETARY TO THE GOVERNMENT OF INDIA"

(Emphasis supplied)

45). In our view, the fallacy in the impugned judgment appears to be in not properly analyzing the clear meaning of the expressions used in para 7(2)(b) of DPCO 1979.

49) In conclusion, we would only say that none of the submissions made by learned counsel for the respondent- company were worth accepting. Accordingly, we allow this 53 appeal and set aside the order passed by the High Court and thereby, we confirm the demands raised by the Central Government. In the facts and circumstances of the case, we deem it proper that the parties will bear their own costs.