Union Of India & Ors vs M/S. Cipla Ltd. & Anr

18. Dr. Reddy’s Laboratories manufactures the bulk drug Norfloxacin and formulations from the said bulk drug. The challenge in the High Court was to a notification dated 13th December, 1996 issued under Paragraph 3 of the DPCO 1995 fixing the price of the bulk drug Norfloxacin at Rs.2162/- per kilogram. However, prior to that on 27th December, 1995 the ceiling price of formulations from the bulk drug Norfloxacin was fixed under Paragraph 9 of the DPCO 1995. This notification was also challenged in the High Court. The High Court found no merit in the writ petitions and dismissed them.

37. The Central Government accepted the Report of the Sankaran Committee and a notification was issued on 17th February, 1989 by which the norms for conversion cost, for packing charges and for process loss of raw materials (other than packing materials in conversion and packing) and process loss of packing materials in packaging were notified with effect from 1st April, 1989.

38. It appears that even though the Sankaran Committee recommended an increase in conversion cost at 25% in the first year (over and above an immediate increase of 50%) and at 25% in the second year and that recommendation was accepted by the Central Government, but it was not implemented. Apparently realizing this, in exercise of powers conferred by Paragraph 6 of the DPCO 1987, a notification dated 15th July, 1993 was issued. By this notification, the norms for conversion cost and for packing charges were increased by 50% in one stroke. The increase in the norms for conversion cost as mentioned in the notification dated 15th July, 1993 tallies with the recommendations made by the Sankaran Committee in Annexure VIII of its Report. However, no change was effected in the norms for process loss of raw materials (other than packing materials in conversion and packing) and process loss of packing materials in packaging which continued to be as per actuals.

41. Subsequent to the new Drug Policy of 1994, the DPCO 1995 was notified on 6th January, 1995 by the Central Government and the NPPA was set up on 29th August, 1997.

51. On the basis of the analysis and details available from the Report of the Sankaran Committee and the CARs, it was concluded by the Masood Committee that no case was made out for an increase in conversion cost and packing charges without a proper study. The question of an ad hoc increase also did not arise.

However, these have not been notified as norms though statutorily required. It is obvious that calculation of norms are very difficult as large number of pack sizes and large number of dosage forms of different material are in the market. The Committee recommends that the BICP be requested to up- date the ceilings and recommend to the Department of Chemicals and Petrochemicals that these may be notified as norms. Till such time as these are communicated by the BICP, the actuals may be allowed. It is recommended that while the norms are notified this provision that actuals for packing material costs are allowed till further norms are notified, be included. This will provide for meeting the statutory requirements also. While allowing the actuals it will be necessary to insist on a certificate from the State Drug Controller that a particular dosage form is being packed by a particular material.” [Emphasis supplied by us].

Failure to consider the cost audit reports

Challenge to the actual norms prescribed

(iii) Failure to prescribe the norms for cost of packing material

137. We may mention en passant that 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.

(iv) Other submissions

Forum shopping

149. We are not at all in agreement with the learned Solicitor General. Forum shopping takes several hues and shades and Cipla’s petitions do not fall under any category of forum shopping.

162. As mentioned above, on 9th April, 1999 Cipla had filed a writ petition being W.P.No.1749 of 1999 in the Bombay High Court. The challenge therein was to the inclusion of bulk drugs Salbutamol and Theophylline in the First Schedule of DPCO 1995.

164. Cipla filed a third writ petition in the Bombay High Court being W.P. No.2019 of 2000. This was filed on 28th September, 2000 and the challenge was to the inclusion of the bulk drug Norfloxacin within the ambit of price control under the DPCO 1995.

166. We find that almost all the notifications under challenge in the Karnataka High Court were also the subject matter of challenge in the Allahabad High Court. However, Cipla had disclosed before the Allahabad High Court that it had filed writ petitions before the Karnataka High Court. There was therefore no concealment of any facts by Cipla. We also find that the consequence of allowing the three writ petitions filed by Cipla in the Bombay High Court would have had an impact on the notifications challenged in the Allahabad High Court, but that impact would have been collateral and consequential. We are of opinion that under these circumstances, Cipla ought to have disclosed the filing of writ petitions in the Bombay High Court, but at this stage we do not think it appropriate to non-suit Cipla only on this ground.

Conclusion

173. Our answer to the questions identified are as follows:

174. In view of the above, the appeals filed by the Union of India are allowed. The impugned judgments and orders are set aside. The appeals filed by Dr. Reddy’s Laboratories Ltd. are dismissed. No costs.

…....………………….J (Madan B. Lokur) .....………………….J New Delhi;

(R.K. Agrawal) October 21, 2016