Glaxo Smithkline Pharmaceuticals Ltd vs Union Of India & Ors

5. The facts in civil appeals from Karnataka High Court are these:

9. On 30.07.1998, Inspector of Drugs sent another letter to the appellant-Company stating therein that under paragraph 16 of DPCO,1995, all sales of the subject formulations would have to be made at the new ceiling price fixed on 09.03.1998 irrespective of the date of manufacture of the subject formulations. The plea of the appellant-Company was, accordingly, rejected by the Inspector of Drugs and he proposed to initiate the prosecution against the appellant-Company under the Essential Commodities Act,1955 (‘EC Act’). This was reiterated by the Inspector of Drugs in his further communication dated 16.11.1998.

13. The two appeals from the judgment of the Delhi High Court are at the instance of the Central Government. The facts in these two appeals in brief are these: For the period 01.04.1979 to 25.08.1987, Drugs (Prices Control) Order,1979 (for short, ‘DPCO,1979’) was in operation. The bulk drug Ranitidine and its formulation were not subject to price control under DPCO,1979, and, consequently, there was no price fixation at all in respect of Zinetac tablets.

14. On 26.08.1987, DPCO,1987 came into force whereby the bulk drug Ranitidine was included and, accordingly, Zinetac tablets (its formulations) were subjected to price control.

15. On 17.03.1988, the price fixation order was issued under para 9(1) of the DPCO,1987 fixing the retail price of Zinetac tablets. The price fixation order is said to have been received by the manufacturer (Biotech Pharma) on 21.03.1988.

16. The respondent is distributor of the Zinetac tablets in the strength of 150 mg and 300 mg per tablet manufactured by Biotech Pharma. Zinetac is a formulation of the bulk drug Ranitidine. On 04.04.1988, the Biotech Pharma sent the supplementary price list effective from 04.04.1988 in form V. It is the case of the respondent that the price fixed by the price fixation order dated 17.03.1988 is applicable with effect from 04.04.1988 (on expiry of 15 days from 21.03.1988, i.e., the date of receipt of the price fixation order dated 17.03.1988).

17. On 23.05.1988, seizures were made of 300 mg Zinetac tablets from Batch No.3104. The respondent’s case is that Batch No.3104 is prior to Batch No.3115 mentioned as the effective batch number in the manufacturer’s letter dated 04.04.1988.

24. Mr. S. Ganesh, learned senior counsel relies upon the Circular dated 28.04.1979 issued by the Central Government wherein it was clarified that all reductions in the prices of formulations effected from time to time by the Central Government would be applicable to the stocks cleared on and after the date of effectuation of reduction. The clarificatory Circular further says that price list shall state clearly the batch numbers from which the reduction is effective. It is, thus, the submission of Mr. S. Ganesh that the formulations which are manufactured and cleared prior to the date of effectuation of reduction (the 15th day after the date of notification in the official gazette or the date of receipt of price fixation/reduction order) are not subject to the price reduction and, accordingly, the said pre-effective batch products can be sold at the previously existing and operating prices which would be printed on them.

42. Following the Hathi Committee Report, the Government first framed the statement on drug policy and then issued DPCO,1979. The DPCO,1970 was accordingly repealed. DPCO,1979 is repealed by DPCO,1987 and DPCO,1987 is repealed by DPCO,1995.

49. The true import of paragraph 14(1) is that once the price notification is gazetted, it takes effect immediately though its enforcement is postponed by fifteen days to enable the manufacturers and others to make suitable arrangements with regard to unsold stocks. We agree with learned Additional Solicitor General that the period of 15 days is simply a grace period or cooling period allowed to manufacturers to adjust their business in a manner where appropriate arrangements are made with regard to the unsold stocks in the distribution chain. The argument of the manufacturer or distributor, if accepted, that the stocks cleared by the manufacturer before the fifteenth day can be sold to the consumer at the higher unrevised price then, in our view, that may result in same formulation being offered for sale to a consumer at two different prices. This must be avoided and, therefore, we do not think that the interpretation put forth by Mr. S. Ganesh is reasonable. It does not deserve acceptance.

55. We are of the considered view that if an interpretation of paragraph 14(1),(2)(3), paragraph 16(3) and paragraph 19 of DPCO,1995 results in frustrating its object and leads to denial of the benefit of current notified price to the consumer, then such interpretation must be avoided. We, therefore, find it difficult to accept the construction put to the above provisions by Mr. S. Ganesh.

60. In our view, it is well settled that if the departmental circular provides an interpretation which runs contrary to the provisions of law, such interpretation cannot bind the Court. 1979 circular falls in such category. Moreover, the 1979 circular is with reference to the DPCO,1979 whereas we are concerned with DPCO, 1987 and DPCO,1995. We are not impressed by the argument of Mr. S. Ganesh that in view of the saving clause in DPCO,1987, the circular is saved which is further saved by the saving clause in DPCO,1995.

Third, the exemption notification is relatable to the manufacturer to the drugs whereas price fixation notification is related to sale of drug/formulation at a given price.

66. The above view of the Delhi High Court is fundamentally flawed and clearly wrong in light of our foregoing discussion. The Karnataka High Court has taken the correct view and the same is upheld.

67. We, accordingly, dismiss the appeals preferred by the manufacturer/distributor and allow the appeals of the Union of India. The parties shall bear their own costs.