UNION OF INDIA & ORS. versus M/S. CIPLA LTD. & ANR.
[2016] 7 S.C.R. 523, Supreme Court of India, 2016
Outcome: Disposed off
Segment: Ratio
[2016] 7 S.C.R. 523 
UNION OF INDIA & ORS. 
v. 
MIS. CIPLA LTD. & ANR. 
(Civil Appeal No.329 of2005) 
OCTOBER 21, 2016 
[MADAN B. LOKUR AND R.K. AGRAWAL, JJ.] 
Drugs (Prices Control) Order, 1995 - Paragraphs 7, 8, 9: 
Notification dated 13. 0 7.1999 - Issuance by the Central 
government under Paragraph 7 prescribing of norms for conversion 
cost, packing charges and process loss of raw materials (other than 
packing materials in conversion) and packing and process loss of 
packing materials in packaging - Validity of - Held: Notification is 
valid - They were issued after due application of mind and based 
on available material duly examined by an expert body -
Notifications were not arbitrarily issued nor were they discriminatory 
in any manner at all nor were they issued mechanically. 
Notifications dated 12.07.2000, 12.07.2001, 12.07.2002 and 
11.07.2003 - Issuance by Central Government under Paragraph 7 
re-notifYing the norms prescribed on 13.07.1999 - Validity of-
Held: Are valid and were not issued mechanically or without any 
application of mind and it was not necessary to re-determine the 
norms every year as required by DPCO, 1995. 
Issuance of notifications by the Central Government fixing 
the retail price or ceiling price of formulations under Paragraphs 
8 and 9 without determining the norm for cost of packing material 
as required by Paragraph 7 - Validity of - Held: Are valid. 
Fixation of retail price of a formulation under Paragraph 8 
without first fixing
the sale price of a bulk drug under Paragraph 3 
utilized in the manufacture of a formulation - Validity of - Held: ls 
valid in law. 
Judicial review: Power of - Notification issued by Central 
Government under Paragraph 8 or 9 - Held: Action of a repository 
of power is also amenable to judicial review if it is contrary to or 
violates the mandatory requirement of a subordinate legislation - If 
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Central Government does not adhere to the formula given in 
Paragraph 7 and fixes the retail price or ceiling price of 
formulations, notification issued under Paragraph 8 or 9 is liable 
to quashed being contrary to law - However, no instance pointed 
out to use the power of judicial review and quash the notifications 
- Drugs (Prices Control) Order, 1995 - Paragraphs 7, 8, 9. 
Alternative remedy: Availability of - Manufacturer or 
formulator aggrieved by fixing of retail or ceiling price of any 
for111ulation - Alternative remedy available under the DPCO 1995 
- Submission that norms not prescribed to 111ake effective case for 
revision or review of price notification - Held: lf any manufacturer 
or formulator had preferred a revision or review application, all 
necessary material would have been 111ade available to the 
complainant for an effective representation - None of the parties 
were precluded, in fact, some of them did - In view of the availability 
of an alternative and efficacious remedy under the DPCO 1995, 
the writ petitions by the manufacturers and formulators ought not 
to have been entertained by the concerned High Courts, but it is 
left at that - Drugs (Prices Control) Order, 1995. 
Forum shopping: Court to adopt a functional test vis-a-vis the 
litigation and the litigant - It is to be seen whether there is any 
functional similarity in the proceedings between one Court and 
another or
whether there is so111e sort of subterji1ge on the part of a 
litigant - Functional test would determine whether a litigant is 
indulging in forum shopping or not - On facts, on examination of 
relief claimed by 'C' Company in the different High Courts, it is 
found that they have no substantive connection whatsoever with 
the relief claimed in the Allahabad High Court -
'C' company s 
petitions do not fall under any category of forum shopping. 
Practice and procedure: Practice of placing scanty material 
before the High Courts, and placing volumes of documents before 
this Court - Held: Such practice degrade the importance of 
proceedings in the High Court and could subsequently embarrass 
the High Court which might inadvertently base its decision on 
insufficient material resulting in possibility of an incorrect decision 
which is liable to be set aside - Such practice is to be discouraged 
- For better adjudication of disputes, it is appropriate for all litigants 
to place 011 record all the material before the court of first instance.
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
Interim order: Matters pertaining to sale of formulations at 
retail price or ceiling price fixed by Central Government through 
notifications issued under the DPCO - Issuance of interim order -
Held: Matters having financial and economic implications, where 
public interest. is involved, the Court ought to be circumspect in 
granting any interim relief - Consequence of an interim order might 
be quite serious to society and consumers and might cause damage 
to public interest and have a long term impact - Drugs (Prices 
Control) Order, 1995. 
Drugs and medicines: Working of drug industry - Interference 
by the courts - Held: Courts have to be extremely cautious in 
interfering in any manner whatsoever with the working of the drug 
industry - Not only is the drug industry in the country extremely 
large with heavy financial stakes but there is lot at stake in it not 
only for the industry but also for the consumers - Any interference 
by the Courts would have wide ranging repercussions not only in 
commercial terms but also for the people of the country. 
Allowing the appeals filed by the Union of India and 
dismissing the appeals by Dr. Reddy's Laboratories Ltd., the 
Court 
HELD: 1. The notification dated 13.07.1999 issued by the 
Central government under Paragraph 7 of the Drugs (Prices 
Control) Order, 1995 prescribing !he norms for conversion cost, 
packing charges and process loss of raw materials (other than 
packing
materials in conversion) and packing and process loss 
of packing materials in packaging is valid and that the notification 
was not issued mechanically or without any application of mind. 
The notifications dated 12.07.2000, 12.07.2001, 12.07.2002 and 
11.07.2003 issued by the Central Government under Paragraph 
7 of the Drugs (Prices Control) Order, 1995 re-notifying the norms 
prescribed on 13.07.1999 are valid and were not issued 
mechanically or without any application of mind and that it was 
not necessary to determine the norms every year as required by 
the Drugs (Prices Control) Order, 1995 and they are valid in law. 
Various notifications issued by the Central Government fixing 
the retail price or ceiling price of formulations under Paragraphs 
8 and 9 (as the case may be) of the Drugs (Prices Control) Order, 
1995 without determining the norm for cost of packing material 
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as required by Paragraph 7 of the Drugs (Prices Control) Order, 
1995 are valid in law. Fixing the retail price of a formulation under 
Paragraph 8 of the Drugs (Prices Control) Order, 1995 without 
first fixing the sale price of a bulk drug under Paragraph 3 of the 
Drugs (Prices Control) Order, 1995 utilized in the manufacture . 
of a formulation is valid in law. The impugned judgments and 
orders are set aside. [Paras 173, 174) (602-C-H; 603-A-B) 
2.1 The view in *Raya/aseenut Paper case would apply to 
the Reports of the Masood Committee and the Jharwal Committee 
set up by the Central Government for recommending the norms 
for the purposes of Paragraph 7 of the DPCO 1995. The Reports 
were antecedent materials, non-statutory and recommendatory 
and could have been rejected by the Central Government. The 
Masood Committee did not (and perhaps could not) recommend 
any norms for conversion cost, packing charges and process loss, 
except for cost of packing material (without process loss). The 
Masood Committee was alive to the statutory requirement of 
prescribing the norms on a yearly basis and therefore referred to 
it. However, as far as the Report of the Jharwal Committee is 
concerned, the Central Government accepted and implemented 
it by issuing a notification on 13.07.1999 under Paragraph 7 of 
the DPCO 1995 - but still did not prescribe the norms for cost of 
packing material recommended by the
Masood Committee. 
[Paras 93, 94) [573-D-F] 
Rayalaseema Paper Mills Ltd. v. Government of A.P. 
2002 (3) Suppl. SCR 323 : (2003) 1 SCC ~41- referred 
to. 
2.2 While the counsel for 'C' company might have serious 
differences of opinion with the recommendations of these 
particular non-statutory Reports, generally a challenge to Reports 
prepared by expert bodies is not easy but is subject to lesser 
judicial scrutiny. A factor here or a factor there that should have 
been taken into account but has been ignored should not 
invalidate the Reports-mere errors in the Reports are not subject 
to judicial review. That there can be a legitimate difference of 
opinion (sometimes serious) bet"tVeen two expert bodies is not at 
all unusual. [Paras 95, 96) [573-G-H; 574-A-B]
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
527 
Prag Ice and Oil Mills and Anr. v. Union of India 1978 
A 
(3) SCR 293:(1978) 3 SCC 459 - relied on. 
Shri Sitaram Sugar Co. Ltd. v. Union of India 1990 (1) 
SCR 909:(1990) 3 SCC 223 - referred to. 
Railroad Commission of Texas v. Rowan & Nichols Oil 
Company 311 US 570, 85 L Ed 358 - referred to. 
2.3 The feel of the expert is important, if not conclusive. 
The two expert Committees made their recommendations. These 
recommendations were then examined and considered by the 
Central Government and on the basis of the expert conclusions 
arrived at, the norms were prescribed by a notification dated 
13.07.1999 issued under Paragraph 7 of the DPCO 1995. Under 
the circumstances, the question of judicial scrutiny of the Reports 
of the Masood Committee and the Jharwal Committee and the 
acceptance of their recommendations by the Central Government 
is not only limited, but in this case it does not arise. It cannot be 
said that the notification dated 13.07.1999 was based on no 
material or was issued without any application of mind. The 
counsel for 'C' company may disagree with the contents of the 
materials, but cannot ignore their existence or that they were 
considered by the Central Government. [Para 97) (574-G-H; 575-
A-B) 
2.4 Fixing the price of any commodity is not only difficult 
but also tricky. There is material to be considered, a bundle of 
factors to be considered and appropriate weight is to be given to 
the
material and the factors. This is not easy to decide and there 
will always be some criticism with regard to either the material 
utilized or the factors considered or the weight attached to the 
materials and factors. In matters pertaining to drug formulations, 
it is not only an issue of demand and supply but also the ability of 
a common person to afford the formulation. At the same time, 
the manufacturer must also make some profit and be in a position 
to invest in research and development. There simply cannot be 
any mathematical precision in fixing the price of a commodity. 
More than enough elbow room or a play in the joints is required 
to be given in such matters-and even then the price fixing 
authority may commit an error. Once this is appreciated, it will 
be realized that the task before the Central Government in 
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3.1 It is true that no manufacturer/formulator is under an 
obligation to furnish whatever information is required by the 
Central Government including information that might be 
confidential. But that does not mean that absolutely no 
information should be supplied by any company or incomplete 
information should be supplied by a very few of them. It would 
certainly be more appropriate for each company to have 
responded to the questionnaires sent with a communication that 
some particular information is not being furnished for reasons of 
confidentiality. But no such courtesy was extended. While there 
may not be a statutory obligation on each manufacturer/formulator 
to furnish information for prescribing the norms, there is certainly 
a moral and social obligation on them to furnish information so 
that appropriate norms could be notified not only for their benefit 
but also for the benefit of the consumers. The preamble to the 
Essential Commodities Act, 1955 cannot be forgotten. By not 
furnishing the information required, the drug industry pushed 
· the Central Government into a corner leaving it with no option 
but to prescribe the norms on the basis of available material and 
later re-notify the norms. It is also true that fixing the price of 
formulations based on the norms prescribed under Paragraph 7 
of the DPCO 1995 is a legislative
activity which the Central 
Government was obliged to carry out on its own research and 
assessment, assuming there was no cooperation from the 
manufacturers/formulators. The efforts made by the Masood 
Committee and the Jharwal Committee for prescribing the norms 
for the purposes of Paragraph 7 of the DPCO 1995 were steps 
leading up to this legislative activity. It is nobody's case that no 
preliminary steps were taken or that no exercise was undertaken 
for arriving at appropriate norms - the steps and exercise were 
in fact undertaken through expert Committees but the material 
used in the exercise and the resultant reports were criticized by 
the counsel for 'C' company. Given the circumstances that the 
two Committees were faced with and given the virtual non-
cooperative attitude of the drug industry, the Central Government 
prescribed the norms and 'C' company and the drug industry 
were obliged to accept them as notified without much ado. It 
cannot be that the drug industry does not supply necessary
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
information and data to the expert Committees appointed by the 
Central Government and then blames the Central Government 
for taking a decision without necessary information and data. The 
failure of the drug industry to extend effective cooperation appears 
to be an endemic problem. [Paras 102, 103, 104) [576-E-H; 577-
A-D] 
3.2 The antecedent materials (the Reports) on the basis of 
which the norms were recommended and then prescribed under 
Paragraph 7 of the DPCO 1995 are subject to lesser judicial 
scrutiny, limited perhaps only to the application of completely 
erroneous principles. The burden for demonstrating the 
application of completely erroneous principles is heavy as it is 
and it is heavier still if the antecedent material is prepared by 
experts. The onus of discharging the heavy burden must 
necessarily fall on the challenger, and 'C' company has not been 
able to sustain the challenge. There can be and are differences of 
opinion but cannot and will not reconsider the opinion of experts, 
particularly in matters of economic affairs or other economy 
related issues unless there is extremely strong reason to do so. 
!Para 106) [578-D-FI 
Union of India v. Swiss Garnier Life Sciences (2013) 8 
SCC 615; Secretary, Ministry of Chemicals and 
Fertilizers v. 'C' Company Ltd. 2003 (2) Suppl. SCR 
177 : (2003) 7 SCC 1; Shri Sitaram Sugar Co. Ltd. v. 
Union of India 1990 (1) SCR 909 : (1990) 3 SCC 223 
- referred to.
3.3 The various notifications issued under Paragraph 7 of 
the DPCO 1995 in 1999 and thereafter prescribing the norms for 
conversion cost, packing charges and process loss of raw 
materials (other than packing materials in conversion) and 
packing and process loss of packing materials in packaging were 
issued after due application of mind and based on available 
material duly examined by an expert body. The notifications were 
not arbitrarily issued nor were they discriminatory in any manner 
at all nor were they issued mechanically nor could it be said that 
they were issued without any application of mind. [Para 108] 
[579-G; 580-A-B] 
4.1 On the one hand, there was virtual non-cooperation from 
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the drug industry in providing information to the Central 
Government despite repeated requests and reminders even by 
expert Committees constituted for the purpose and on the other 
there was a perceived statutory obligation on the Central 
Government to notify the norms every year and that responsibility 
could not be effectively discharged without the cooperation of 
the drug industry. Therefore the Central Government, faced with 
an extra-ordinary situation and a stalemate putting the consumers 
of an essential commodity at the mercy of the drug industry, had 
no option but to re~notify the existing norms in public interest on 
the basis of the available material. [Para 110] [580-F-G] 
4.2 The insistence of the drug industry to work out the 
norms on the basis of the CARs was another stumbling block 
staring at the face of the Central Government. The Cost Accounts 
Branch of the Department of Expenditure in the Ministry of 
Finance, had clearly expressed the view that the norms could 
not be effectively determined only on the basis of the CARs. 
Finally, the non-cooperation of the drug industry from October 
1998 onwards was another road block. The overall attitude of 
the drug industry appears to be one of profit making or preserving 
commercial interests, while the concern should really be of 
promoting consumer interest. Faced with these competing 
interests, the Central Government sided with the
consumer and 
cannot be faulted for it. The Central Government did not act in a 
routine or mechanical manner in re-notifying the norms every 
year from 2000 onward. [Para 111) [581-B-D] 
4.3 The re-notification of the prescribed norms in the period 
2000 to 2003 was not mechanical or without any application of 
mind. The materials were before the Central Government and 
there was no change in the content of the materials. If there was, 
the drug industry failed to effectively point it out as a result of 
their non cooperative attitude. Also that re-notification of the 
prescribed norms is per se not impermissible and in the instant 
case it was justified in the circumstances. [Para 112] [581-E-F] 
Shri Malaprabha Coop. Sugar Factory v. Union of 
India 1993 (2) Suppl. SCR 415 : (1994) 1 SCC 648 -
referred to.
UNION OF INDIA & ORS. v. MIS. ClPLA LTD. & ANR. 
5.1 The norms fixed by the Central Government are of 
general application, they are not intended to benefit or harm any 
particular manufacturer or formulator and indeed no manufacturer 
or formulator is required to be heard (or was heard) in the 
determination, they are notified in the Official Gazette for the 
information of the general public and in arriving at the norms the 
general attributes of legislative activity are attended to by the 
Central Government for the benefit of the consumers. The 
notification of the norms therefore, has the character of legislative 
activity. [Para 114] [583-C-D] 
5.2 No submission was made to the effect that the formula 
given in Paragraph 7 of the DPCO 1995 was not applied proprio 
vigore by the Central Government. The statutory criterion for 
price fixing is the formula given in Paragraph 7 of the DPCO 
1995. Whether this formula has been operated as it should be is 
certainly subject to judicial review. Therefore, while operating 
the formula, if the Central Government did not take conversion 
cost into consideration or took into consideration some factor 
not in the formula then, the Court could certainly strike down 
the retail price or the ceiling price so fixed by the Central 
Government on the ground that relevant factors were ignored or 
irrelevant factors were taken into consideration. No such 
allegation was made and no such contention was advanced by the 
'C' company. [Para
115] [582-E-F] 
Prag Ice and Oil Mills and Am: v. Union of India 1978 
(3) SCR 293 : (1978) 3 SCC 459; Union of India v. 
Cynamide India Ltd. & Anr: 1987 (2 ) SCR 841 : (1987) 
2 SCC 720; Glaxosmithkline Pharmaceuticals Ltd. v. 
Union of India 2013 (12) SCR 1120 : (2014) 2 SCC 
753; Shri SitarG111 Sugar Co. Ltd. " Union of India 1990 
(1) SCR 909 : (1990) 3 SCC 223; Saraswati Industrial 
Syndicate Ltd. v. Union of India 1975 (1) SCR 956 : 
(1974) 2 sec 630 - referred to. 
6.1 There are several reasons that can be culled out from 
the Report of the Masood Committee for the Central 
Government not determining and prescribing the norms in 1995 
and thereafter for the next three years. It is clear that the 
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manufacturers/formulators were not put to any disadvantage in 
the retail price fixed on the basis of the norms prescribed under 
the DPCO 1987. Therefore, under these circumstances, the bona 
{ides of the Central Government in not prescribing the norms 
every year certainly cannot be doubted. [Paras 122,126) [586-B, 
H; 587-A) 
6.2 That apart, the provisions of Paragraph 8(5) and 
Paragraph 27 of the DPCO 1995 come to the aid of the Central 
Government and these provisions enabled the continuation of 
the norms prescribed under Paragraph 6 of the DPCO 1987 and 
saved the notifications issued under the provisions of Paragraphs 
8 and 9 of the DPCO 1995. This 'arrangement' certainly could 
not have carried on indefinitely, but the recalcitrance of the drug 
industry pushed the Central Government into a corner leaving it 
with little option but to continue the 'arrangement' till an 
alternative was found through an in-depth study. This is perhaps 
where the Central Government erred. It should have set up the 
NPPA soon after announcing the new Drug Policy in 1994 and it 
should have enacted a legislation constituting the National Drug 
Authority in terms of the Drug Policy, 1994. Had these steps 
been taken, the Central Government would not have to face 
litigation in different parts of the country. What is tragic is that 
even today, there does not seem to be any sign of the Central 
Government taking any
steps to constitute a statutory National 
Drug Authority. [Para 127] (587-B-D] 
6.3 Although several notifications issued between 1995 and 
1999 were collaterally challenged by the manufacturers/· 
formulators, the Court was not shown any notification in which 
the retail price or the ceiling price was varied to their detriment. 
Assuming there was such a notification, a manufacturer/formulator 
was entitled to question the adverse revision by moving an 
application under the provisions of Paragraph 8(4) and Paragraph 
22 of the DPCO 1995. No such application was moved by any 
manufacturer/formulator. [Para 128) [587-E-F) 
6.4 It is not necessary to revise the retail price or ceiling 
price of every formulation every year - and if there is no such 
mandate, then it must follow that there is no mandate to prescribe 
the norms every year under Paragraph 7 of the DPCO just for 
the sake of it. What has to be seen by the Central Government,
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
in the larger context, is whether the drug industry is losing out in 
any manner and whether the consumers of formulations are being 
put to any discomfort. A fine balance has to be struck and if the 
Central Government has been successful in doing that, as it 
appears, then carrying out an annual ceremonial procedure or 
annual academic exercise of determining and prescribing the 
norms under Paragraph 7 of the DPCO 1995 regardless of whether 
there is any necessity to do so is not mandatory. [Para 129] [588-
D-F] 
6.5 The Central Government cannot be compelled to 
perform a legislative activity or legislative exercise that is of no 
consequence and is perhaps ritualistic. While the formula given 
in Paragraph 7 of the DPCO 1995 must be mandatorily adhered 
to for fixing the retail price of a formulation, the requirement of 
prescribing the norms every year is discretionary and would 
depend upon the exigencies of the situation - it might be every 
year or less frequently or more frequently. [Para 130] [588-G-H] 
6.6 It was submitted that the principles known as Heydo11 's 
mischief rule arc clearly applicable and there was a conscious 
decision by the Central Government to switch over from 
prescribing the norms from time to time as required under the 
DPCO 1987 to fixing the norms on a yearly basis as required 
under Paragraph 7 of the DPCO 1995, and since the norms were 
not fixed on a yearly basis under the DPCO 1995, the
retail prices 
fixed by the Central Government on the formulations on the basis 
of Paragraph 7 of the DPCO 1995 were illegal and liable to be 
struck down. Nothing has been told regarding the mischief, if 
any, sought to be remedied. Given the scheme of the DPCO 1995 
there was no mandate of prescribing the norms under Paragraph 
7 of the said DPCO every year. [Paras 131, 132] [589-B-D] 
Heydon s case [1584] EWHC Exch J 36 - referred 
to. 
7.1 It does appear that the drug industry was content with 
being allowed to take the cost of packing material on actuals rather 
than insisting on the Central Government issuing a notification 
prescribing the norms for cost of packing material. It is believed 
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that in fact there was no necessity of fixing the cost of packing 
material as a norm for the purposes of Paragmph 7 of the DPCO 
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1995 and that there was no fatal error in the notifications issued 
under Paragraph 7 of the DPCO 1995 from 1999 onward. 
Prescribing the norms every year under Paragraph 7 of the DPCO 
1995 was a discretionary exercisP,. [Para 135] [590-C-D] 
7.2 If the formula given in Paragraph 7 of the DPCO 1995 is 
not strictly adhered to by the Central Government while working 
out the retail price of a formulation. But if the drug industry is 
itself quite content with being given the benefit of actuals in 
material cost rather than having a norm fixed in that regard, then 
there is no obligation to completely upset the apple cart and quash 
a few dozen notifications at the behest of only a couple of 
respondents. If it is done, this Court would be acting to the 
detriment of the entire drug industry (except one), but also 
provide no advantage to the consumers who have already 
purchased the formulations more than a decade ago and have no 
hope of getting a refund on their purchase. Additionally, no public 
or societal interest would be served in quashing a few dozen 
notifications under these circumstances. [Para 136] [590-E-G] 
8.1 It cannot be said that the retail price or the ceiling price 
of a formulation could not have been fixed by the Central 
Government without first fixing the maximum sale price under 
Paragraph 3 of the DPCO 1995 of the bulk drug utilized in the 
formulation. In the first place, there is
no obligation on the Central 
Government to fix the maximum sale price of every bulk drug, 
whether it is in the First Schedule to the DPCO 1995 or not. In 
fact, if a bulk drug is not in the First Schedule to the DPCO 1995 
the Central Government is not empowered to fix its maximum 
sale price. There could also be a situation where a formulation 
consists of two or more drugs, one of which is not a scheduled 
drug. In that event, if the submission is accepted then it would 
mean that the retail price or the ceiling price of that formulation 
cannot be fixed. This is surely not the intention of the DPCO 
1995 nor is it a possible manner of reading the DPCO 1995. If 
the DPCO 1995 were to be read in the suggested manner, then 
every drug would have to be included in the First Schedule to 
the DPCO 1995 as a pre-condition to fixing the retail price or 
ceiling price of a formulation which contains that drug. This would 
be doing utmost violence to the plain provisions of the DPCO 
1995. [Para 138] [591-B-F]
UNION OF INDIA & ORS. v. MIS. CIPLA L TO. & ANR. 
8.2 There is no inclination to take the submission that the 
ceiling price of formulations fixed under Paragraph 9 of the DPCO 
1995 denied the benefit of an exemption notification dated 
2.03.1995 available to small scale industries, with any degree of 
seriousness particularly since it seems to suggest that the Central 
Government acted with a ma/a fide intent. There is no warrant 
for such li.n assumption and no such allegation or averment has 
been made in the pleadings. The issuance of a notification under 
Paragraph 9 of the DPCO 1995 is a legislative exercise of power 
and to say that it was resorted to for denying the benefit of an 
exemption to small scale industries can hardly be given any 
credence. There is nothing in the DPCO 1995 to suggest that a 
small scale industry is kept out of the rigour of the DPCO 1995. 
It is equally bound by any retail price or ceiling price fixation by 
the Central Government. [Para 139] (591-G-H; 592-A-B] 
8.3 The action of a repository of power is also amenable to 
judicial review if it is contrary to or violates the mandatory 
requirement of a subordinate legislation. Therefore, if the Central 
Go"Vcrnment does not adhere to the formula given in Paragraph 
7 of the DPCO 1995 and fixes the retail price or ceiling price of 
formulations without following the formula laid down, the 
notification issued by the Central Government under Paragraph 
8 or Paragraph 9 of the DPCO 1995 (as
the case may be) is liable 
to quashed as being contrary to law. However, no instance has 
been pointed out to compel the Court to use the power of judicial 
review and quash the notifications under consideration. [Para 142] 
(593-C-E) 
V. K. Ashokan v. Assistant Excise Co111111issioner 2009 
(4) SCR 331: (2009) 14 SCC 85; District Collector, 
Chittoor v. Chittoor District Groundnut Traders 
Association. 1989 (1 ) SCR 243:(1989) 2 SCC 58; 
Marathwada University v. Seshrao Ba/want Rao 
Chavan 1989 (2) SCR 454:(1989) 3 SCC 132; Barium 
Chemicals Ltd. v. Company law Board 1966 Supp SCR 
311: State of U.P. v. Renusagar Power Co.1988 (1) 
Suppl. SCR 627 : (1988) 4 SCC 59; Shri Sitaram Sugar 
Co. ltd. v. Union of India 1990 (1) SCR 909:(1990) 3 
sec 223 - referred to. 
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A 
Associated Provincial Picture Houses Ltd. v. Wednesbury 
Corporation (1948) 1 KB 223:(1947) 1 All ER 498; 
Mayor & C Westminster Corporation v. London and 
North Western Railway 1905 AC 426: 93 LT 143. 
- referred to. 
8 
9.1 Form III in the Second Schedule to the DPCO 1995, is 
a Form of application for approval or revision of the price of 
scheduled formulations. This requires, in paragraph 13 thereof, 
information relating to the break-up of the retail price of a 
formulation. The submission was that an effective application 
could not be made without the norms being prescribed. The norm 
C 
for conversion cost was prescribed first by the notification dated 
17.02.1989 and then by the notification dated 13.07.1999 (and 
subsequent notifications). It is difficult to accept the submission 
that despite these notifications a manufacturer or formulator was 
unaware of the norms for conversion cost. As far as the norm for 
0 
packing material cost is concerned, sub-paragraph (c) provides 
an option to the applicant-either the information mentioned in 
paragraph 15 may be provided or the norms may be provided. 
Paragraph 15 requires the applicant to provide information 
pertaining to the pack, batch size (tablets I gms etc.), name of the 
packing material, rate per unit, quantity required per batch and 
E 
value of packing material/batch nos./kgs etc. (in rupees). 
Therefore, even if the norm for cost of packing material is not
prescribed, the applicant can provide the requisite information 
(based on actuals) for the purposes of making an effective 
application for revision of the price of a scheduled formulation. 
F 
Incidentally, the Form also confirms that no manufacturer or 
formulator is placed at any disadvantage if the norm for packing 
material cost is not prescribed under Paragraph 7 of the DPCO 
1995 but actuals are allowed. [Para 145) [594-B-F) 
G 
H 
9.2 If any manufacturer or formulator had taken the trouble 
of preferring a revision or review application, all necessary 
material would have been made available to the complainant for 
an effective representation. None of the parties was precluded 
by circumstances from preferring a revision or review for 
corrective measures in relation to the retail price or ceiling price 
of any particular formulation - in fact, some of them did. [Para 
146) (595-D-E)
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
9.3 ln view of the availability of an alternative and efficacious 
remedy available under the DPCO 1995 read with the decision 
of this Court in Cynamide India Ltd. the writ petitions filed by the 
manufacturers and formulators ought not to have been 
entertained by the concerned High Courts, but it is left at that. 
[Para 14i] [ 595-F] 
Union of India v. Cynamide India Ltd. & Anr. 1987 (2 ) 
SCR 841 : (1987) 2 SCC 720 - referred to. 
10.1 Forum shopping takes several hues and shades and 
'C' compa11y's petitions does not fall under any category of forum 
shopping. The decisions referred to clearly lay down the principle 
that the Court is required to adopt a functional test vis-a-vis the 
litigation and the litigant. What has to be seen is whether there 
any functional similarity in the proceedings between one Court 
and another or whether there is some sort of subterfuge on the 
part of a litigant. It is this functional test that would determine 
whether a litigant is indulging in forum shopping or not. Keeping 
all these in mind with several other nuances and also keeping 
the functional test in mind, the relief claimed by 'C' Company in 
the different High Courts is examined and it is found that they 
have no substantive connection whatsoever with the relief 
claimed in the Allahabad High Court. [Paras 149, 157, 158) (596-
A-B; 598-C-D] 
Rajiv Bhatia v. Govt. of NCT of Delhi and others 1999 
(2) Suppl. SCR 280 : (1999) 8
SCC 525; Arathi Bandi 
v. Bandi Jagadrakshaka Rao (2013) 15 SCC 790; 
World Tanker Carrier Corporation v. SNP Shipping 
Services Pvt. Ltd. and others 1998 (2 ) SCR 1032 : 
(1998) 5 SCC 310; Ambica Industries ii Commissioner 
of Central Excise 2007 (7) SCR 685 : (2007) 6 SCC 
769; Jagmohan Bahl and another v. State (NCT of Delhi) 
and another 2014 (12) SCR 543 : (2014) 16 SCC 501; 
Udyami Evam Khadi Gramodyog Welfare Sanstha and 
onother v. State of Uttar Pradesh and others 2007 (12) 
SCR ~33:(2008) 1 SCC 560 - relied on. 
10.2 Almost all the notifications under challenge in the 
Karnataka High Court were also the subject matter of challenge 
in the Allahabad High Court. However, 'C' Company had disclosed 
537 
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SUPREME COURT REPORTS 
[2016] 7 S.C.R. 
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 'C' Company. The consequence of 
allowing the three writ petitions filed by 'C' Company in the 
Born bay 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. Under these 
circumstances, 'C' Company ought to have disclosed the filing of 
writ petitions in the Bombay High Court, but at this stage it is 
not appropriate to non-suit 'C' Company only on this ground. 
[Para 166] [599-B-G] 
10.3 The proceedings in the Allahabad High Court were 
initiated as a result of a show cause notice issued to 'C' Company. 
No similar show cause notice and no similar factual circumstances 
existed in any of the other High Courts in which 'C' Company 
had initiated proceedings. It cannot, therefore, be said that 'C' 
Company had indulged in forum shopping in any manne:-
whatsoever. [Para 167] [599-G-H; 600-A] 
11.1 By and large, very little or scanty material was placed 
by the Union of India before the concerned High Courts, 
particularly the Allahabad High Court. On the other hand, several 
volumes of docum~nts have been filed in this Court, though after 
permission. Such a practice deserves discouragement and this 
Court does so. There are several reasons for this. It
tends to 
degrade the importance of proceedings in the High Court and 
could subsequently embarrass the High Court which might 
inadvertently base its decision on insufficient material resulting 
in the possibility of an incorrect decision which is liable to be set 
aside. It might also cause serious prejudice to a litigant because 
it is for the first time in this Court that the entire material is 
made available to a litigant placing him/her at a disadvantage in 
dealing with issues of importance. It certainly places an 
unnecessai-y and totally avoidable burden on this Court which is 
required to deal with the material as a court of first instance. 
Under such circumstances this Court does not have the benefit 
of the opinion of the High Court while dealing with an appeal. All 
in all therefore, for the better adjudication of disputes and for the 
convenience of all concerned, it would be more appropriate for
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 
the Union of India, as indeed for all litig:mts to place on record all 
the material before the court of first instance, whether it is a · 
district court or a High Court. [Para 168] (600-B-E] 
11.2 Certain interim orders were brought to the notice 
restraining coercive action against a manufacturer/formulator 
when a price notification was under challenge. It is true that such 
an interim order could have a huge impact on society. Under these 
circumstances, in matters where public interest is involved, the 
Court ought to be circumspect in granting any interim relief. The 
consequence of an interim order might be quite serious to society 
and consumers and might cause damage to public interest and 
have a long term impact. It is made clear that it is not the intention 
to suggest to any Court how and in what circumstances interim 
orders should or should not be passed but it is certainly the 
intention to make it known to the Courts that the time has come 
when it is necessary to be somewhat more circumspect while 
granting an interim order in matters having financial or economic 
implications. [Paras 169, 171] [600-G; 601-E-G] 
11.3 The Drug Policy, 1994 mentions that as far as the drug 
industry is concerned, there are about 250 large units and about 
8000 small scale units in operation. These units produce about 
350 bulk drugs, and more than 2000 formulations. The Drug 
Policy, 1994 also mentions that the production of
bulk drugs in 
1993-94 is in the region of Rs. 1320 crores and for the same 
period the product!on of formulations is in the region of Rs. 6900 
crores. In other words, not only is the drug industry in the country 
extremely large with heavy financial stakes but there (s lot at 
stake in it not only for the industry but also for the consumers. 
For this reason, the Courts have to be extremely cautious in 
interfering in any manner whatsoever with the working of the 
drug industry. Any interference by the Comis would have wide 
ranging repercussions not only in commercial terms but also for 
the people of the country. [Para 172] (601-G-H; 602-A-B] 
Case Law Reference 
2003 (2) Suppl. SCR 177 
2002 (3) Suppl. SCR 323 
referred to 
referred to 
Para9 
Para 90 
539 
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SUPREME COURT REPORTS 
[2016] 7 S.C.R. 
A 
1987 (2) SCR 841 
referred to 
Para 92 
1978 (3) SCR 293 
referred to 
Para 95 
1990 (1) SCR 909 
referred to 
Para 96 
(2013) 8 sec 615 
referred to 
Para 104 
B 
2003 (2) Suppl. SCR 177 
referred to 
Para 105 
1993 (2) Suppl. SCR 415 
referred to 
Para 109 
2013 (12) SCR 1120 
referred to 
Para 113 
1975 (1) SCR 956 
referred to 
Para 115 
c 
2009 (4) SCR 331 
referred to 
Para 140 
1989 (1) SCR 243 
referred to 
Para 140 
1989 (2) SCR 454 
referred to 
Para 140 
1966 Supp SCR 311 
referred to 
Para 141 
D 
1988 (1) Suppl. SCR 627 
referred to 
Para 141 
1999 (2) Suppl. SCR 280 
referred to 
Para 150 
(2013) 15 sec 790 
referred to 
Para 151 
E 
1998 (2) SCR 1032 
referred to 
Para 152 
2007 (7) SCR 685 
referred to 
Para 153 
2014 (12) SCR 543 
referred to 
Para 154 
2007 (12) SCR 933 
referred to 
Para 155 
F 
(2016) 5 sec 808 
referred to 
Para 156 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 329 of 
2005. 
From the Judgment and Order dated 03 .03 .2004 of the High Court 
of Judicature at Allahabad in Civil Misc. Writ Petition No. 41214 of2003 
G 
WITH 
C. A. No. 4005 of2004 
C. A. Nos. 9561-9584, 9585, 9586 and 9609-9610of2016. 
Ranjit Kumar, SG., Rana Mukherjee, Parag P. Tripathi, Kapil Sibal, 
H
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
P. Chidambaram, Soli Cooper, C.S. Vaidhyanathan, H.L. Tiku, Sr. Advs., 
Prateek Jalan, Aman Ahluwalia, Ms. Sunita Gautam, Ms. Movita Prateek, 
G.S. Makkar, Abhinav Mukherjee, Rahul Kripalani, Ankit Yadav, 
Shreekant N. Terdal, 8. Krishna Prasad, 8. V. 8alaram Das, Ms. 
Neelima Tripathi, Shikhar Khare, Dr. Kailash Chand, D.D. Majumdar, 
Ms. Mishika 8ajpai, K. V. Mohan, R.N. Karanjawala, Ms. Ruby Singh 
Ahuja, Ms. Suman Yadav, Karan Dev Chopra, Milinda Sharma, Mrs 
Manik Karanjawala (for Mis. Karanjawala & Co.), Ms. Yashmeet Kaur, 
Shubhankar Sengupta, Ashok K. Mahajan, Ms. Asha Jain Madan, 
Mahesh Agarwal, Ankur Saigal, E. C. Agrawala, U .A. Rana, Mrs. Mrinal 
Elkar Mazumdar, Avirat Kumar (for Mis Gagrat & Co.), Shreekant N. 
Terdal, Advs. for the appearing parties. 
The Judgment of the Court was delivered by 
MADAN B. LOKUR, J. I. The issues that arise in this batch of 
appeals are as follows: 
a. Whether the notification dated J3•h July, 1999 issued by the 
Central Government under Paragraph 7 of the Drugs (Prices Control) 
Order, 1995 prescribing the norms for conversion cost, packing charges 
and process loss of raw materials (other than packing materials in 
conversion) and packing and process loss of packing materials in 
packaging was issued mechanically and without any application of mind 
or is it valid iq law? 
b. Whether the notifications dated 12th July, 2000, J 21h July, 200 I, 
J2•h July, 2002 and I J1h July, 2003
issued by the Central Government 
under Paragraph 7 of the Drugs (Prices Control) Order, 1995 re-notifying 
the norms prescribed on 13th July, 1999 were issued mechanically, without 
any application of mind and without re-determining the norms every 
year as required by the Drugs (Prices Control) Order, 1995 and are 
valid in law? 
c. Whether various notifications issued by the Central Government 
fixing the r\ltail price or ceiling price of formulations under Paragraphs 8 
and 9 (as the case may be) of the Drugs (Prices Control) Order, 1995 
without determining the norm for cost of packing material as required by 
Paragraph 7 of the Drugs (Prices Control) Order, 1995 are valid in law? 
d. Whether fixing the retail price of a formulation under Paragraph 
8 of the Drugs (Prices Control) Order, 1995 without first fixing the sale 
• 
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[2016] 7 S.C.R. 
A 
price of a bulk drug under Paragraph 3 of the Drugs (Prices Control) 
Order, 1995 utilized in the manufacture of a formulation is valid in law? 
2. We are primarily concerned with the Drugs (Prices Control) 
Order, 1995 (the DPCO 1995) and for historical reasons with the Drugs 
(Prices Control) Order, 1970 (the DPCO 1970), the Drugs (Prices Control) 
B 
Order, 1979 (the DPCO 1979) and the Drugs (Prices Control) Order, 
1987 (the DPCO 1987). All these Orders were issued by the Central 
Government in exercise of powers conferred by Section 3 of the Essential 
CommoditiesAct, 1955. 
c 
D 
E 
F 
G 
H 
The appeals before us 
3. The principal appeal before us and in which the leading 
submissions were made is Civil Appeal No. 329 of 2005 filed against 
Cipla. This appeal is directed against the judgment and order dated 3rd 
March, 2004 passed in Writ Petition (C) No.41214 of2003 by the Di vision 
Bench of the Allahabad High Court. 
4. The challenge in the writ petition was to notifications issued by 
the Central Government on 12'h July, 2000, 12'h July, 2001, J2•h July, 
2002 and 11th July, 2003 re-notifying the norn1s prescribed by notification 
dated 13'
11 July, 1999 issued under Paragraph 7 of the DPCO 1995 on 
the basis of which the retail price of formulations is fixed under Paragraph 
8 of the DPCO 1995. It was held by the High Court that these notifications 
were issued mechanically and without any application of mind. 
5.
The consequence of the decision of the Allahabad High Court 
is that about 40 notifications fixing the retail price and ceiling price of 
formulations have been invalidated. 
6. The High Court also quashed the show cause notice dated I 61h 
August, 2003 issued by the Inspector of Drugs in Varanasi alleging that 
Cipla had charged higher retail prices than those notified by various 
notifications. In view of this allegation, the Inspector of Drugs required 
Cipla to clarify whether it had any order from the National Pharniaceutical 
Pricing Authority exempting it from compliance with the price 
notifications and to give the quantities of the formulations sold during the 
period 1995 till date. 
7. Civil Appeal No. 4005 of2004 is directed against the judgment 
and order dated 271h April, 2002 passed by the Division Bench of the 
High Court of Punjab & Haryana at Chandigarh in C.W. P. No. 15677
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 
[MADAN B. LOKUR, J.] 
of 1999 filed by M/s Martin & Harris Laboratories Ltd. 
8. Three issues have been raised in this appeal. The first is whether 
the inclusion of the bulk drug Diosmin in the First Schedule to the DPCO 
1995 is valid or not. The second is whether the ceiling price fixed by the 
Central Government in the notification dated 20th July, 1998 of the Diosmin 
formulation was in accordance with the provisions of Paragraph 7 of the 
DPCO 1995. The third is whether the ceiling price of the Diosmin 
formulation could have been fixed under Paragraph 9 of the DPCO 
1995 without first fixing the maximum sale price of the bulk drug Diosmin 
under Paragraph 3 of the DPCO 1995. 
9. By an order dated I 5th September, 2016 we had declined to go 
into the first question. We had remanded the matter back to the High 
Court to reconsider the issue in the light of the decision rendered by this 
Court in Secret(lry, Ministry of Cliemic(l/s & Fertilizers, Government 
of Indi" v. Ciplu Ltd & Otliers.
1 
I 0. As far as the second question is concerned, it is really somewhat 
similar to the principal issue raised by Cipla, while the third question is 
quite independent. 
11 \ Civil Appeal No. 9585 of 2016 filed by the Union of India 
arises out of judgment and order dated 6th August, 2012 passed by the 
Division Bench of the High Court of Karnataka at Bangalore allowing 
Writ Petition (C) No. 6585 of 2004 filed by Jshaan Labs Pvt.
Ltd. & 
another. 
12. The first issue raised in this appeal pertains to the validity of 
the notification dated 11th July, 2003 issued by the Central Government 
re-notifying the norms for conversion cost, packing and process loss 
earlier prescribed by the notification dated J 3th July, 1999. In this context, 
the contention of Ishaan Labs is that the notification dated 11th July, 
2003 was issued by the Central Government mechanically and without 
any application of mind and that it was rightly quashed by the High 
Court. 
13. The second issue i& regarding the validity of the notification 
dated 3rt1 September, 2003 fixing the ceiling price ofGlipizide formulations 
under Paragraph 9 of the DPCO 1995. This is consequential to the first 
issue. The contention oflshaan Labs is that the requirements of Paragraph 
1 (2003) 7 sec 1 
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SUPREME COURT REPORTS 
[2016] 7 S.C.R. 
7 of the DPCO 1995 were not adhered to and, therefore, the notification 
dated 3rd September, 2003 is liable to be struck down. 
14. Civil Appeal No. 9586 of 2016 and Civil Appeal Nos. 
9561-9584 of 2016 arise out of a common judgment and order dated 
301h October, 2012 passed by the Division Bench of the High Court of 
Kamataka at Bangalore in a batch of Writ Appeals and Writ Petitions 
including those filed by Remidex Pharmaceuticals Pvt. Ltd. and Johnson 
& Smith Co. & Another. By the impugned judgment and order, the High 
Court effectively followed its earlier decision dated 6•h August, 2012 in 
W. P. No. 6585 of2004 filed by lshaan Labs Pvt. Ltd. 
15. The High Court dealt with and struck down the validity of 
several notifications fixing the ceiling price of formulations under 
Paragraph 9 of the DPCO 1995. These notifications were struck down 
because they were based on notifications issued under Paragraph 7 of 
the DPCO 1995 which in turn were struck down because the 
requirements of Paragraph 7 of the DPCO 1995 were not adhered to. 
The correctness of this decision is before us. 
16. One additional contention urged on behalf of one of the 
respondents (M/s Okasa Limited) is that small scale industries were 
exempted from the operation of Paragraph 8 of the DPCO 1995 (relating 
to the retail price of formulations) by a notification dated znd March, 
1995. It was submitted that fixing the ceiling
price of formulations under 
Paragraph 9 of the DPCO 1995 was a collateral attempt to bypass the 
effect of the exemption notification dated znd March, 1995 and deny its 
benefit to small scale industries. 
17. Civil Appeal Nos. 9609-9610 of2016 arise out of judgment 
and order dated 16th April, 2004 passed by the High Court of Judicature, 
Andhra Pradesh at Hyderabad in Writ Petitions Nos. 18507 of 1996 and 
645 of 1997 filed by Dr. Reddy's Laboratories Ltd. 
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 !31h 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 271h 
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
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 
545 
[MADAN B. LOKUR, J.] 
no merit in the writ petitions and dismisse·d them. 
A 
19. The primary submission made before us by learned counsel 
appearing on behalf of Dr. Reddy's Laboratories was that the ceiling 
price of the Nortloxacin formulations could not be fixed prior to fixing 
the maximum sale price of the bulk drug Nortloxacin under Paragraph 3 
of the DPCO 1995. It was also contended that the requirements of 
B 
Paragraph 7 of the DPCO 1995 were not adhered to while notifying the 
ceiling price DfNortloxacin formulations. 
Brief b!!_ckeround 
20. The core issue in this batch of appeals relates to the 
interpretation and application of Paragraph 7 of the DPCO 1995 and 
Paragraphs 8 and 9 of the DPCO 1995 -the extent of flexibility available 
to the Central Government in fixing the retail price and ceiling price of 
formulations and the rigidity expected by the statutory Order. The specific 
issue in these appeals relates to the validity of various notifications 
prescribing the norms for calculating the retail price of formulations under 
Paragraph 7 of the DPCO 1995 for the purposes of Paragraphs 8 and 9 
of the DPCO 1995. 
21. Paragraph 7 of the DPCO 1995 reads as follows: 
"7. Calculation of retail price of formulation. The retail 
c 
D 
price of a formulation shall be calculated by the Government 
E 
in accordance with the following fo1mula, namely, xx 
R.P. = (M.C.+ C.C.+ P.M.+P.C.) x (l+MAPE/100) +ED. 
Where-
"R.P." means retail price; 
F 
"M.C." means material cost and includes the cost of 
drugs and other pharmaceutical aids used including 
overages, if any plus process loss thereon specified as a 
norm from time to time by notification in the Official 
Gazette in this behalf; 
G 
"C.C." means conversion cost worked out in 
accordance with established procedures of costing and shall 
be fixed as a norm every year by notification in the Official 
Gazette in this behalf; 
H
546 
SUPREME COURT REPORTS 
[2016] 7 S.C.R. 
A 
"P.M." means cost of the packing material used in 
the packing of concerned fonnulation, including process loss, 
and shall be fixed as a norm every year by notification 
in the Official Gazette in this behalf; 
"P.C." means packing charges worked out in 
B 
accordance with established procedures of costing and shall 
be fixed as a norm every year by notification in the Official 
Gazette in this behalf; 
"MAPE" (Maximum Allowable Post-manufacturing 
Expenses) means all costs incurred by a manufacturer from 
c 
the stage of ex-factory cost to retailing and includes trade 
margin and margin for manufacturer and it shall not exceed 
one hundred per cent for indigenously manufactured 
scheduled formulations; 
D 
E 
F 
G 
H 
"E.D." means excise duty; 
Provided that in the case of an impo11ed formulation, 
the landed cost shall fonn the basis for fixing its price along 
with such margin to cover selling and distribution expenses 
including interest and importer's profit which shall not 
exceed fifty per cent of the landed cost. 
Explanation.- For the purpose of this proviso, "landed 
cost" means the cost of import of formulation inclusive of 
customs duty and clearing charges." [Emphasis supplied] 
22. A perusal of the above provision would show that for calculating 
the retail price of formulations, the five determining factors are material 
cost, conversion cost, packing material cost, packing charges and 
maximum allowable
post-manufacturing expenses (or MAPE). During 
the hearing of these appeals, there was no discussion at all about 
detennination of material cost or MAPE. It must, however, be mentioned 
that in one of the appeals a submission was made that the retail price of 
a fonnulation could not be fixed without first determining the maximum 
sale price ofa bulk drug in terms of Paragraph 3 of the DPCO 1995. 
That apart, there was no dispute or grievance made about material cost 
and MAPE. The dispute centred round fixing the norms for conversion · 
cost, packing material cost and packing charges "every year". There 
was also a question raised in one of the appeals that in the absence of
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 
[MADAN 8. LOKUR, J.] 
the cost of packing material being fixed as a norm, the formula for fixing 
the retail price of formulations under Paragraph 7 of the DPCO 1995 
. could not operate. 
23. According to the Central Govemment, the norms fixed under 
Paragraph 7 of the DPCO 1995 have been fixed after due application 
of mind to the available materiat and despite the lack of any effective 
cooperation from the manufacturers/formulators in disclosing information 
that could have been of further assistance to the Central Government. 
Additionally, according to the Central Government ifthe manufacturers/ 
formulators were aggrieved by the retail price and ceiling price fixed on 
the basis of the norms, they had the remedy (which they did not avail) of 
having them revised in accordance with the provisions of the DPCO 
1995. 
24. Before discussing the historical background leading up to the 
dispute before us, it is necessary to state that there is no dispute that 
earlier the norms were fixed under Paragraph 6 of the DPCO 1987 by a 
notification dated 17th February, 1989 issued by the Central Government 
and later updated by another notification dated l 51h July, 1993 pursuant 
to the recommendations of the Sankaran Committee. There is no 
challenge to the I 989 or the I 993 norms. 
25. However, it is significant that the norms prescribed by the 
February 1989 notification pertained to conversion cost, packing charges 
and
process loss of raw materials (other than packing materials in 
conversion and packing) and process loss of packing materials in 
packaging. Norms were not prescribed for cost of packing material. 
Similarly the July I 993 notification prescribed nonns only for conversion 
cost and packing charges. It did not prescribe any norms for process 
loss of raw materials (other than packing materials in conversion and 
packing) and process loss of packing materials in packaging or for cost 
of packing material. 
26. Paragraph 6 of the DPCO 1987 is as follows and its contrast 
with Paragraph 7 of the DPCO 1995 with reference to determination of 
norms "from time to time" and "every year" can be easily seen: 
"6. Calculation of retail price of formulations. xx 
The retail price of the formulation shall be calculated in 
accordance with the following formula, namely: 
547 
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8 
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SUPREME COURT REPORTS 
[2016) 7 S.C.R. 
A 
R.P. = (M.C.+ C.C.+ P.M. + P.C.) x (I+ MAPE/100) 
B 
c 
D 
E 
+E.D. 
Where xx 
"R.P." means retail price, 
"M.C." means material cost and includes the cost of 
drugs and other 
pharmaceutical aids used including 
overages, if any, plus process loss thereon specified as a 
norm from time to time by notification in the Official 
Gazette in this behalf, 
"C.C." means conversion cost worked out in 
accordance with established procedures of costing and may 
be fixed as a norm from time to time by notification in 
the Official Gazette in this behalf, 
"P.M." means cost of the packing material used in 
the packing of concerned fonnulation and includes process 
loss, as a norm fixed from time to time by notification in 
the Official Gazette in this behalf, 
"P.C." means packing charges worked out in 
accordance with established procedures of costing and may 
be fixed as a norm from time to time by notification in 
the Official Gazette in this behalf, 
"MAPE" means Maximum Allowable Post-
Manufacturing Expenses including trade margin referred 
to in para. 7, 
F 
"E.D." means excise duty: 
Provided that in the case of an imported formulation, 
the landed cost shall form the basis for fixing its price along 
with such margin to cover selling and distribution expenses 
including interest and importer's profit which shall not 
G 
exceed 50 per cent of the landed cost. 
H 
Explanation. xx For the purposes of above proviso, 
"landed cost"
shall mean the cost of irnp01t of drug inclusive 
of customs duty and clearing charges." [Emphasis supplied] 
27. We have been informed by the learned Solicitor General that
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 
[MADAN B. LOKUR, J.] 
today as many as 2147 formulations are manufactured in the country. 
The number might have been less during the period that we are concerned 
with, but surely the number would not have been significantly less. But 
be that as it may, there can be no doubt that the Central Government is 
concerned with the retail price and ceiling price of an extremely large 
number of formulations. To this may be added the 'complication' of the 
variety in which the formulations could be available. These could be in 
the form of plain tablets, coated tablets, sustained release tablets (all 
three categories being small, medium, large and extra large); capsules 
(soft, hard and sustained release); liquids (syrup and elixirs, suspension, 
emulsion and malts and paediatric drops); ointments and creams; 
ampoules; sterile liquid vials; non sterile dry powder and granules; sterile 
dry powder and sterile dry powder liophylised. The packing of the 
formulations could be in strips of I 0 or 15 or 20 or more or in bottles, or 
tubes or vials etc. In other words, the task of fixing the retail price and 
ceiling price of formulations is not only gargantuan but also extremely 
complex. 
28. lt is also important to remember that the purpose of fixing the 
retail price and ceiling price of formulations is to make them affordable 
and ultimately benefit the consumer of medicines. Profits earned by 
manufacturers/formulators are
secondary and 'profiteering' is certainly 
out of the question. The preamble to the Essential Commodities Act, 
1955 provides: 
"An Act to provide, in the interests of the general public, for 
the control of the production, supply and distribution of, and trade 
and commerce, in certain commodities." [Emphasis supplied by 
us]. 
There is no dispute that "drugs" as defined in the Drugs and 
Cosmetics Act, 1940 is an essential commodity in view of Section 2A 
read with the Schedule to the Essential Commodities Act, 1955. 
Historical background beginning with the Sankaran Committee 
29. The DPCO 1987 was issued on 261h August, 1987. Soon 
thereafter, a Committee called the Sankaran Committee was set up on 
2"d September, 1987 the occasion being that the norms prescribed for 
conversion cost, packing charges and process loss of raw materials (other 
than packing materials in conversion and packing) and process loss of 
packing materials in packaging were last announced a decade ago in 
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I 979 in accordance with the provisions of the DPCO·l 979. The Sankaran 
Committee was set up for a quick revision of the norms and it was 
mandated to submit its report within three months. It is important to note 
that Paragraph 6 of the DPCO 1987 provided for the calculation of 
retail price as per a given formula. One of the factors in the formula is 
P.M. meaning "cost of the packing material used in the packing of 
concerned formulation and includes process loss, as a norm fixed from 
time to time by notification in the Official Gazette in this behalf." 
Notwithstanding this, the norm for cost of packing material was not 
prescribed in the notification dated J 7•h February, 1989 and no objection 
was apparently raised by any manufacturer of formulations or formulator 
- at least no ol1jection was brought to our notice by anybody. In other 
words, as far as the drug industry is concerned the formula given in 
Paragraph 6 of the DPCO 1987 and Paragraph 7 of the DPCO 1995 
could be operated without prescribing the norm for cost of packing 
material. 
30. The Sankaran Committee held its first meeting on 221h 
September, 1987. During the course of deliberations, it sought the views 
of the drug industry associations such as the Organization of 
Pharmaceutical Producers of India (OPPI) and the Indian Drug 
Manufacturers Association (IDMA) to enable itto satisfactorily complete 
its task. The Sankaran
Committee also issued a questionnaire to 23 
companies (manufacturers/formulators) soliciting some information. 
Subsequently, the questionnaire was sent to another 12 such companies 
since the response from the earlier set of23 companies was somewhat 
lukewarm. 
31. After analyzing all the material available before it, hearing the 
drug industry associations and visiting a few companies to be acquainted 
with the actual conversion and production centres in the field1 the 
Sankaran Committee submitted its Report sometime in April, 1988. 
32. A few observations from the Report of the Sankaran Committee 
need mentioni~: 
(i) The nonns for conversion cost, packing charges, process losses 
for raw materials and packing material were originally notified sometime 
in 1974 under the DPCO 1970. These norms were re-notified as 
recommended by the Bureau of Industrial Costs and. Prices (for short 
the BICP) on 3rd May, 1979 vide S.0. No. 259(E) under the DPCO
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1979. These norms as notified on 3rct May, 1979 were essentially the 
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same as notified in 197 4. 
However, with regard to the cost of packing materials, norms were 
not fixed under the DPCO 1979. The Sankaran Committee observed in 
this regard as follows: 
"4. No norms have been fixed under DPCO 1979 for cost 
of packing material. This fluctuates and differs from product 
to product. The BICP is at present guided by cost ceilings 
which are reviewed periodically. These have not been 
statutorily notified as norms. Calculations of these norms 
are very difficult as a large number of large pack sizes are 
involved. It is therefore recommended that till such time 
the norms are worked out by BICP, and these are notified, 
the actuals may be allowed." 
(ii) The Report noted that "While notifying the norms under the 
Drugs (Prices Control) Order, 1979 the Bureau of Industrial Costs and 
Prices reviewed the earlier nonns by examining the information provided 
by about 7 of the 36 manufacturers who were asked to submit data and 
concluded that the norms notified in 1974 were adequate and did not call 
for any revision." 
In other words, the manufacturers/formulators did not provide the 
necessary information and assistance even to the BICP in its endeavour 
to determine the norms for conversion costs and packing charges. 
33. Faced with this situation, the Sankaran Committee took the 
following view on
the basis of available information: 
(a) Conversion cost: The increasing cost of production and 
conversion costs have led to a situation where the existing norms cover 
less than 50% of the actual costs. In the case of public sector companies 
like IDPL and HAL they cover less than 30% of the actual costs. 
Accordingly, it was generally recommended that conversion cost to be 
increased by 100% over the existing norms. 
(b) Packing charges: By and large, a similar view (as above) 
was taken with regard to packing charges namely that the existing norms 
be increased by I 00%. 
(c) Process loss of raw materials and packing materials: 
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Perhaps due to improved technological processes and efficiencies in 
manufacturing techniques, the data submitted by the manufacturers 
"though hesitantly" clearly indicated that the existing norms for process 
loss of materials were on the higher side. Accordingly, a reduction of 
I% (broadly- we are not going into specifics since it is not necessary) 
was recommended in the norms for process loss on raw materials and 
packing materials. 
(d) Packing material: As mentioned above, the cost of packing 
materials was not fixed under the DPCO 1979 since the cost of packing 
material fluctuates frequently and also differs from product to product. 
It was observed that an exercise is being undertaken by the BICP in this 
regard and until the ceiling cost of packing material is updated by the 
BICP, it was recommended by the Sankaran Committee that the actuals 
may be allowed. 
34. Paragraphs 11 and 12 from Chapter 5 (titled Recommendations) 
of the Report of the Sankaran Committee are important for appreciating 
why the cost of packing materials was not fixed. These paragraphs read 
as follows: 
"I I. As regards the norms for packing materials costs, the 
Industry Associations (IDMA & OPP!) represented that 
packing material costs vary from product to product 
depending on the nature of the product being marketed and 
fixation of norms for such type of products may not be 
justifiable. They, therefore, requested
the Committee 
to consider actual cost of packing materials. 
12. The Committee notes that cost of packing material 
fluctuates frequently and also differs from product to 
product. Due to this reason and the fact that fixation 
of norm for this is very difficult, no norms were fixed 
in 1979. No norms have been subsequently recommended 
by the BICP. The current practice of the BICP is to 
regulate the claims for packing material cost on the basis 
of ceiling cost for various packages as approved by Drugs 
Prices Review Committee. These ceiling costs, we 
understand, are reviewed periodically by the BICP. While 
recommending prices of formulations, the BICP is being 
guided by these ceilings. However, these have not been
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notified as norms though statutorily required. It is 
obvious that calculation ofnorms 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 
nc;;essary 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]. 
35. Paragraph 16 of the Report is relevant for appreciating the 
strategy for implementation of the recommendations made by the 
Sankaran Committee and this reads as follows: 
"16. The newly recommended norms are in Annexure VIII. 
The revised norms are bound to lead to some increase in 
the prices of formulations. In Annexure IX this Committee 
has tried to work out the likely impact of recommended 
norms in the prices ofa few select formulations. The effect 
on 37 representative formulations of various
companies is 
included here. The price increase ifthe entire recommended 
norms are announced, varies from 0.45 percent to 4 7. 71 
percent. These formulations cover almost all the dosage 
forms. In view of the substantial increase in the price ofa 
few formulations, this Committee recommends that instead 
of giving full increase in the norms, that is, implementing 
the revised norms immediately, it is suggested that 50% 
of the increased norms may be announced 
immediately. At the end of the first year, a further25% 
increas" in norms may be implemented, the remaining 
25% being added at the end of the second year. The 
likely effect of such staggered implementation of the revised 
norms shall result in increase of 0.3,!}% to 26.32 percent 
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change in the existing prices." [Emphasis supplied by us]. 
36. A perusal of Annexure VIII indicates that the Sankaran 
Committee recommended fixing of norms for conversion cost, packing 
charges and process loss of raw materials (other than packing materials 
in conversion and packing) and process loss of packing materials. 
Significantly, norms for cost of packing materials were not fixed by the 
Sankaran Committee for the reasons given above and instead, it was 
recommended that provision for actual cost of packing materials be 
allowed, as recommended by the drug industry. The discussion in the 
Sankaran Committee points to a two-fold significance - that from 1979 
onwards, at least, the cost of packing material (as a nonn) had not been 
prescribed and that the drug industry was apparently quite satisfied with 
the provision of actuals for packing material which could certainly not 
be to the disadvantage of anybody in the drug industry. 
3 7. The Central Government accepted the Report of the Sankaran 
Committee and a notification was issued on I 7'h February, 1989 by which 
the norms for conversion cost, for packing charges and for process loss 
ofraw materials (other than packing materials in conversion and packing) 
and process loss of packing materials in packaging were notified with 
effect from I" 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 15'
11 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 15'" 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. 
39. At th is stage it may be mentioned that pursuant to the study or 
exercise conducted by the l31CP, the Central Government approved the
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ceiling price of packing material cost and made it applicable from 7'h 
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July, 1994. However, this was not notified in the Official Gazette. 
Drug Policy, 1994 
40. The Government of India announced the new Drug Policy 
which was issued on I 5'h September, 1994. Some of the relevant 
paragraphs of the Policy relate to the background of the earlier Drug 
Policy ofl 986, the necessity of setting up an independent body of experts 
to be called the National Pharmaceutical Pricing Authority (NPPA) to 
do the work of price fixation of drugs and formulations and the 
establishment of a National Drug Authority by a separate Act of 
Parliament to perform a variety of specified functions. It is not necessary 
to detail the functions of the National Drug Authority except to say that 
despite a l1>pse of more than 20 years the National Drug Authority has 
not yet been set up. 
41. Subsequent to the new Drug Policy of 1994, the DPCO 1995 
was notified on 6'h January, 1995 by the Central Government and the 
NPPA was set up on 29'h August, 1997. 
Masood Committee 
42. Instead of taking immediate steps to set up the NPPA in terms 
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of the new Drug Policy, the Central Government set up a Norms Review 
Committee (called the Masood Committee) on 24'h April, 1995 to review 
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the norms recommended by the Sankaran Committee. The terms of 
reference of the Masood Committee were as follows: 
"The terms of
reference of the Committee will include 
review of the existing norms relating to Conversion Cost 
(CC), Packing Costs (PC) and Process Losses and working 
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out of norms for Packing Material (PM) and also giving 
recommendations in regard to related matter such as norms 
for pro-rata price fixation on the basis of ceiling prices of 
formulations. 
The Committee will submit its recommendations to the 
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Government within a period of2 months from the date of 
issue of this office memorandum." 
43. During the course of submissions before us learned counsel 
for Cipla was intensely critical of the Report submitted by the Masood 
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Committee on 31" August, 1995 and, therefore, some broad details of 
the contents of the Report are necessary. 
44. The Masood Committee was of the view that it was necessary 
to elicit the views of the drug industry before making its recommendations. 
Accordingly, a meeting was held on 31" May, 1995 in which 
representatives from various drug industry associations participated. The 
industry associations represented were the Indian Drug Manufacturers 
Association (!OMA), the Organization of Pharmaceutical Producers of 
India (OPP!), All India Small Drug Manufacturers Association 
(AISDMA) and All India Small Scale Pharmaceutical Manufacturers 
Association (AISSPMA). In that meeting the industry associations made 
the following demands: 
(a) Ad-hoc relief based on inflation/increase in consumer 
price index since 1987 should be given. 
(b) Associations felt that a simplified questionnaire would 
meet the requirements to give maximum benefit in fastest 
time and no detailed exercise was required. 
It was suggested that Cost Audit Reports may be made use 
of for broad categories of dosage form and escalations be 
worked out over the existing norms. 
Additional costs on account ofGMP [Good Manufacturing 
Practices] should be given. 
45. Prior to the above meeting, the Masood Committee had 
prepared a questionnaire for eliciting information from various companies 
for the purposes of carrying out its duties.
This questionnaire (referred 
to in (b) above) was discussed with the industry associations on 31" 
May, 1995 when they requested for time to examine it and assured the 
Masood Committee that their suggestions on the questionnaire would be 
submitted latest by 81h June, 1995. However, no suggestions were 
received by the Masood Committee which then issued the questionnaire 
on 9/12 June, 1995 requesting the manufacturers/formulators to furnish 
the requisite information by 301h June, 1995. Thereafter, some 
representations were received requesting for the deletion of some 
questions but this was not acceded to by the Masood Committee. It is 
recorded in the Report of the Masood Committee that no unit furnished 
replies to the questionnaire despite reminders and requests to the industry
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
(MADAN B. LOKUR, J.] 
through the Department of Chemicals and Petrochemicals for extending 
necessary cooperation to the Masood Committee. The absence of any 
response to the questionnaire was perhaps due to the demand of the 
associations [demand (c) above} to make use of the Cost Audit Reports 
for working out escalations over the existing norms. 
46. Faced with this situation, the Masood Committee had no option 
but to examine the Report prepared by the Sankaran Committee and 
also the available Cost Audit Reports (hereinafter referred to as the 
CARs) for the latest years, namely, 1993-94. 
47. With regard to the norms for conversion cost and packing 
charges, the Masood Committee observed in Chapter 3 of its Report 
that it examined the data in respect of 16 companies which had apparently 
submitted some information to the Sankaran Committee out of 35 
companies to whom the questionnaire had been sent. [Earlier even the 
Sankaran Committee and the BlCP did not receive full cooperation from 
the drug industry]. The Masood Committee was of the view that since 
the absorbed cost of conversion costs and packing charges was in the 
range of more than 50% and up to 82% for 7 out of 16 companies, the 
conclusion earlier arrived at that absorption was to the extent of 50% of 
the then prevailing norms appeared to be arbitrary. On an examination 
of the materials before the Sankaran Committee, the conclusion arrived 
at by the
Masood Committee was that it was not possible to review the 
norms. The Masood Committee therefore decided to look into CA Rs of 
1993-94. It was noted that the CARs were available in respect of only 
6 companies and some discrepancies were noted in the information made 
available in the CARs. One of the criticisms made by learned counsel 
for Cipla was that the Masood Committee considered the CA Rs of only 
two companies and that too for only three or four formulations and 
therefore the conclusion that costs as given in the CARs "have not been 
allocated in accordance with the established Costing procedures but in 
an arbitrary manner" was not justified. 
48. Notwithstanding the (disputed) discrepancies, the data available 
in the CARs was analyzed by the Masood Committee to determine 
whether there was an increase in the conversion cost and packing 
charges keeping in mind that the Sankaran Committee had based its 
conclusions on data available in 1985-86/1986-87. The analysis made 
by the Masood Committee gave a mixed picture of actual costs being 
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equal, higher or lower than the existing nonns for conversion cost with 
respect to various dosage forms. The Masood Committee came to a 
similar conclusion in the cost of packing charges also. 
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49. It was then concluded that ifthe cost allocation in the CARs 
was as per established costing procedures and the norms recommended 
by the Sankaran Committee were on a realistic basis, inflation during the 
period 1986-87 to 1994-95 and increase in energy and other costs should 
have resulted in the actual conversion cost being higher than the existing 
norms. Accordingly, the Masood Committee was of the view that the 
data available in the CARs could also not be made use of. 
50. The Masood Committee also considered other factors including 
profitability situation as per the CARs, the revision of packing material 
ceilings from 7'h July, 1994, a decrease in total formulation activity coming 
under price control from 70% under the DPCO l 987 to 50% under the 
DPCO 1995 and uniform MAPE of 100% under the DPCO 1995 as 
against 75% and 100% MAPE under the DPCO 1987. 
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. 
52. On the issue of process loss on
raw materials and packing 
materials, it may be recalled that this had actually been reduced by the 
Sankaran Committee. On the basis of the CARs of the 6 companies 
that were available with the Masood Committee, it was concluded that 
with high production levels and better capacity utilization as well as new 
technological processes, the process loss was expected to come down. 
In any event, since no infonnation was provided to the Masood Committee 
through the questionnaire sent to the industry and the companies, it was 
not desirable to recommend any ad hoc reduction in the existing norms. 
However, the Masood Committee expressed the view that the existing 
norms for process loss on raw materials and packing materials were on 
the high side. 
53_. With regard to the packing material cost, as already noted 
above, these were subject to ceilings as worked out and recommended 
by the BICP and approved by the Central Government from time to 
time. The last such approval was on 7'h July, 1994. The Masood
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Committee decided to adopt packing material costs (without process 
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loss) "as might be available from the study by Drug Cell [of the BICP] 
and utilise the same for developing norms for Packing Material Cost." 
54. The Masood Committee gave its conclusion in Chapter 7 of its 
Report. Some of the relevant conclusions are given below (not in 
seriatim): 
B 
(i) The Sankaran Committee after estimating the CC & PC 
[conversion cost and packing charges] for the industry 
recommended that the differential between the estimated 
CC and PC and the then existing [norms?], be given in 
phases. It imp lied that the industry got the assessed CC & 
PC for 1986-87 in July 1993 when the third and final 
increase was allowed. In other words, the industry should 
have suffered losses on a continuing basis at increasing 
levels i.e. years subsequent to 1986-87, on two counts (a) 
assessed CC & PC fc,r 1986-87 was not allowed to be 
absorbed fully and (b) due to impact of general inflation 
subsequent to 1986-87. 
(ii) The Committee has also examined the actual CC & PC 
as given in the Cost Audit Reports of six companies with a 
view to develop norms for the same as suggested by 
Industry Associations. Analysis of the data did not reveal 
any logical correlation of cost elements over a large range 
of products. Discrepancies and anomalies observed in the 
data have already been described in Chapter 3. 
(iii)
Non-response to the questionnaire by industry and their 
insistence that no detailed exercise should be undertaken 
by the Committee further lends support to the conclusion 
arrived at by the Committee that the possible cushion in the 
existing norms and in other inputs more than offsets the 
inflation during the period l 986-87 to l 994-95. The 
Committee, therefore, recommends that no further 
escalation should be given till replies to the Questionnaire 
are received and an in-depth analysis done by an Expert 
Group to assess the escalation/de-escalation required in the 
existing norms of not only CC, PC and PL (both for raw 
materials & packing materials) but also overages. 
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(iv) The other terms of reference ...... have been dealt 
with in Chapters 5 and 6. Based on the information furnished 
by the industry in response to the questionnaire earlier issued 
by the BICP, nonns for packing material (with process loss) 
only could be worked out. 
55. The recommendations made by the Masood Committee in 
connection with the terms of reference were given in Chapter 8 of the 
Report and the relevant recommendations are: 
(i) On the basis of analysis described in relevant chapters, 
the revision of existing norms for CC, PC and PL in 
accordance with established procedures of costing cannot 
be done without evaluation of the latest data. Taking into 
account all the relevant factors, the Committee is firmly of 
the view that there is no case for any increase in the 
present norms without study. Consequently, the question 
of an ad-hoc increase, does not exist at all. 
(ii) Norms for packing material costs (without process 
loss) have been worked out as given in Annex. 5.3 
Implementation of these norms in isolation is not 
recommended keeping in view the overall profitability 
scenario of the industry. 
(iii)xxxxx 
(iv) (a) In-depth study in regard to CC, PC, PL and 
also overages is necessary for revision of existing norms/ 
ceilings on a scientific basis and in accordance with the 
F 
established procedures of costing. 
(b) Para 7 of DPCO, 1995 stipulates yearly revision of 
norms for CC, PC,
PM and PL and does not provide for 
any ad-hoc increases. This calls for developing indices 
based on in-depth study and effecting revision of all 
0 
the norms simultaneously every year. 
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[Emphasis supplied by us] 
56. It will be seen from a reading of the Report of the Masood 
Committee that the industry was not at all inclined to furnish information 
to the Masood Committee and the exercise which it was tasked to perform
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could be carried out only on the basis of the Report of the Sankaran 
Committee and the CARs of 6 companies. According. to the Masood 
Committee this material was clearly inadequate to arrive at any definite 
conclusion, necessitating the recommendation of setting up an Expert 
Group to complete the task. Apart from a criticism of the Report, the 
submission made by learned counsel for Cipla was that all the information 
required by the Masood Committee was available in the CARs which 
were with some Ministry or the other of the Central Government, ifnot 
with the Ministry of Industry or the Department of Company Affairs. 
All the CARs could easily be requisitioned by the Masood Committee to 
fix the norms and this was possible even ifthe industry did not co-operate 
with the Masood Committee, more particularly since price fixing is a 
legislative exercise required to be carried out independently. 
57. However, the Masood Committee determined the norms for 
cost of packing material (without process loss) and these norms were 
mentioned in Annexure 5.3 of the Report of the Masood Committee' but 
the Central Government decided not to prescribe the norms for cost of 
packing material and accepted the view of the Masood Committee that 
prescribing the norms for cost of packing material in isolation (and without 
process loss) wou Id not serve any purpose. 
Jharwal Committee 
58. After the Report of the Masood
Committee was ·submitted on 
31" August, 1995 it appears that there was little or no activity from the 
side of the Central Government or from the side of the industry in respect 
of fixing the norms "every year" under the DPCO 1995. Our attention 
has been drawn to an unspecified "demand" made perhaps sometime in 
early 1997 for a revision in the norms in the cost of packing material. 
This was brought out in an official file noting dated 2'id April, 1997 followed 
by another official file noting of the same date suggesting acceptance of 
the Report of the Masood Committee, including the recommendation 
that the norms for cost of packing material (without process loss) could 
not be implemented in isolation. Jt also appears from the official file 
notings placed before us by the learned Solicitor General that the 
constitution of the NPPA was expected and one of the suggestions put 
forth in the official file notings was to await the constitution and functioning 
of the NPPA and authorize it to conduct a thorough study of the type 
recommended by the Masood Committee. 
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59. The NPPA was eventually constituted on 29th August, 1997. 
We are not aware of the activities of the NPPA thereafter except that a 
meeting was held on 27th January, 1998 by the NPPA with representatives 
of IDMA and OPPI where there was a discussion for the need to revise 
the norms of conversion cost and packing charges. This was followed 
by a letter dated 27th April. 1998 sent by the industry indicating that the 
existing norms were based on the data available in 1988 which had 
become outdated and obsolete and since then there had been a significant 
increase in the cost of various items that go into the calculation of these 
norms. 
60. Apparently as a result of the dialogue and correspondence 
between the NPPA and the industry, a Committee called tlie Jharwal 
Committee was set up on 8th October, 1998. It may be noted that Dr. 
Jharwal was the Member Secretary of the NPPA. In its Report 
submitted on 5'" April, 1999 the Jharwal Committee noted that the 
packing material cost ceiling had been revised on 7•h July, 1994 by the 
BICP and thereafter it was revised by the NPPA in February 1998 (again 
with no objection from the drug industry). Consequently, the only issue 
addressed by the Jharwal Committee was the fixing of norms for 
conversion cost, for packing charges and for process Joss. 
61. The Jharwal Committee had earlier prepared a draft 
questionnaire (as was done by the Sankaran Committee
and the Masood 
Committee) sometime in October 1998 and circulated it to the industry 
so that suggestions could be made for appropriate modifications in the 
questionnaire. The Jharwal Committee met on 28th November, .1998 and 
finalized the questionnaire in the absence of an adequate response from 
the industry. 
In the next meeting held on ! 2•h December, 1998 the 
industry expressed its inability to furnish the data in respect of the installed 
capacity of the companies. 
62. Be that as it may, the information required in terms of the 
questionnaire prepared by the Jharwal Committee was not at all 
forthcoming from the industry. Faced with these difficulties and in the 
absence of cooperation from the industry, the Jharwal Committee 
considered the suggestion of the Department of Chemicals and 
Petrochemicals for a partial increase in the existing norms of conversion 
cost and pack!_ng charges based on the inflation factors and till a full-
fledged cost study is finalized. Acting upon this suggestion the Jharwal 
Committee considered several factors as mentioned in its Report as
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
[MADAN B. LOKUR, J.] 
well as the wholesale price index and other relevant factors and felt that 
it would be adequate and reasonable to compensate for the assessed 
increase in conversion cost and packing charges only to the extent of 
50% of the inflation factor which worked out to 4.5%. This was criticized 
by learned counsel for Cipla as being totally unrealistic. 
63. As already mentioned above since the packing material cost 
had already been revised in February 1998 (after July 1994) no 
recommendation was made by the Jharwal Committee in this regard. 
As regards process loss the Jharwal Committee felt that there was no 
appropriate measure available to suggest any ad hoc revision in the 
absence of factual data and it was suggested that the process loss may 
be re-notified at the existing level till revised on the basis of a fresh 
study already in progress through the NPPA. 
64. One important observation made by the Jharwal Committee in 
its Report relating to the non-cooperation of the industry and its suggestion 
to defer a detailed study is required to be quoted. This reads as follows: 
"It would also be pertinent to mention that though the 
Industry Associations (OPPI and IDMA) were impressed 
upon the need to advise their member companies to furnish 
the required data to NPPA as early as in October, 1998, 
there has been a luke-warm response and indifference on 
their part in furnishing the data. They have even
suggested 
NPPA to defer the detailed study, which is already in 
progress. NPPA is continuing its effort to complete the 
study and accordingly sent couple of reminders to the 
manufacturers, advising them to submit the data 
expeditiously. However, the response so far has been far 
from satisfactory." 
65. The conclusions of the Jharwal Committee were to the effect 
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that the existing norms of conversion cost and packing charges may be 
revised by giving an ad hoc increase of only 4.5% in each as an interim 
measure; there is no need to revise the said norms on an ad-hoc basis 
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beyond 4.5% unless warranted by the outcome of a detailed study already 
in progress; ifthe industry does not furnish the required data the same 
norms may be re-notified every year to meet the requirements of the 
DPCO 1995 and the norms for process loss may be re-notified at the 
existing level till revised on the basis of the fresh study already in progress. 
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66. The Report of the Jharw'al Committee and its acceptance by 
the Central Government led to the issuance of a notification S.0. 578 
(E) dated 13m July, 1999 under Paragraph 7 of the DPCO 1995. Through 
this notification fresh norms were prescribed for conversion cost, packing 
charges and process loss of raw materials (other than packing materials 
in conversion) and packing and process loss of packing materials in 
packaging for the purposes of Paragraph 7 of the DPCO 1995. Norms 
for cost of packing material were not prescribed, apparently since this 
was permitted on actuals. 
Review of the three Reports 
67. A review of the Report of the Sankaran Committee, the Report 
of the Masood Committee and the Report of the Jharwal Committee 
bring out the following salient points: 
a) The drug industry was unwilling to extend its full cooperation 
in furnishing data required by the Central Government for 
prescribing the nonns as required by the DPCO 1987 and 
the DPCO 1995. One of the possible explanations for this 
reluctance put forth by learned counsel for Cipla (it was 
clarified that Cipla was not a member of any drug industry 
association after a particular point of time) that the members 
of the drug industry might not have been willing to part with 
confidential infonnation which could be used by competitors. 
b) Faced with the reluctance of the drug industry to part with 
necessary data the Central
Government had no option but 
to carry out its exercise of prescribing norms in terms of 
Paragraph 6 of the DPCO 1987 and Paragraph 7 of the 
DPCO 1995 for conversion cost, packing charges and 
process loss ofraw materials (other than packing materials 
in conversion) and packing and process loss of packing 
materials in packaging. This might have involved some 
element of ad hoc decision making and guess-work but that 
was necessitated by the circumstances confronting the 
expert bodies set up by Central Government. 
c) The norms prescribed by the Sankaran Committee appeared 
to be adequate and actually provided a cushion but required 
a little tweaking at a later stage due to a variety of factors, 
including inflation. There does appear to be general
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
[MADAN B. LOKUR, J.] 
acceptance by the drug industry of the norms prescribed 
pursuant to the Report of the Sankaran Committee. Similarly, 
there does appear to be general acceptance of the ad hoc 
measures taken post the Masood Committee and eventually 
the notification issued by the Central Government pursuant 
to the Report of the Jharwal Committee in respect of 
conv,~rsion cost, packing charges and process loss. 
d) The issue of packing material cost was separately addressed 
by the Central Government through the BICP and also 
through decisions taken on 7'h July, 1994 and February 1998. 
The norms for the cost of packing material were not 
prescribed or notified in the Official Gazette. However, the 
drug industry was entitled to work out the cost of packing 
material on actuals, and it seemed quite satisfied with the 
result given that the ceiling was fixed in July 1994 and 
February 1998. 
68. Norms were not prescribed "every year" as required by 
Paragraph 7 of the DPCO 1995 particularly for the years 1995-1996, 
1996-1997, 1997-1998 and 1998-1999. We were informed thatthe ''year" 
is from July to June of the following year. The learned Solicitor General 
sought to justify the absence of prescribing the norms "every year" as 
required by Paragraph 7 of the DPCO 1995 for the four years mentioned 
above. We will be dealing with the submissions in this regard at a later 
stage. 
Exercise for subsequent years 
69. Post
the notification dated lJ'h July, 1999 the next stage for 
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the Central Government was to notify the norms for 2000-2001. This 
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exercise appears to have been initiated with reference to the norms for 
the cost of packing material through a letter dated 61h October, 1999 
issued by the NPPA to IDMA and similar letters to other associations. 
What is on record before us is the reply by OPP! to the NPPA of I l'h 
January, 2000 to the effect that a meaningful response could be given if 
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the existing norms for packing material costs were made available and 
some clarity brought regarding the basis for the ceiling fixed. This letter 
was viewed by the NPPA as yet another delaying tactic in providing the 
requisite information. Apparently realizing this, OPP! addressed a letter 
to the NPPA on 91h March, 2000 to the effect that an "independent 
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professional consultant" had been assigned the task "to facilitate 
expeditious compilation of the requisite data" to assist in the development 
of norms for cost for packing materials. Although it is not clear from the 
record, but it does appear that the data compiled (if any) by the 
independent professional consultant engaged by OPP! was not furnished 
to the NPPA. 
70. Quite independently, a dialogue was initiated by the NPPA 
with the drug industry with regard to fixing the norms for conversion 
cost and for packing charges. It appears that the drug industry 
associations had engaged an independent consultant in this regard and a 
two page report given by the consultant was submitted to the NPPA by 
a letter dated 2"d March, 2000 by the associations. 
71. We have seen the report and it is clearly inadequate. It was 
pointed out by the NPPA in a letter dated 23'd March, 2000 that no 
justification had been given in the report for the rise in the industrial 
average in respect of conversion cost and packing charges nor had any 
indication been given as to.how the industrial average had been worked 
out as also the source of information. 
72. No further material has been brought to our notice with regard 
to fixing the norms for the year 2000-200 I in terms of Paragraph 7 of 
the DPCO 1995. 
73. As on earlier occasions and in the absence of any further 
information or data with the NPPA or the Central Government,
a decision 
was taken towards the end of June, 2000 to notify the existing norms for 
2000-200 I without allowing for any change from the norms prescribed 
on J3'h July, 1999. Accordingly, a notification being S.O. 660(E) dated 
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12•h July, 2000 was issued and gazetted. 
74. Similarly, for 2001-2002 what is placed before us by the Union 
of India is a two page official noting dated 9'h July, 200 I referring to the · 
Report of the Jharwal Cornmittee. The official file noting further records 
that despite requests by the NPPA to IDMA and OPP! requisite 
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information was not forthcoming from October, 1998 onward. A 
reference was made to the letter dated 23'd March, 2000 and that no 
response to it had been received. In view of this, it was proposed (and 
that proposal was accepted) that the same norms as were prescribed on 
J 3•h July, 1999 may be re-notified as the norms for 2001-2002. There is 
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[MADAN B. LOKUR, J.] 
no dispute that a gazette notification dated 12'h July, 200 I was issued in 
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terms of the decision taken. 
75. The stalemate continued even thereafter for the next two years 
2002-2003 and 2003-2004 with the NPPA and the Central Government 
insisting on a response to the questionnaires sent for collecting data for 
fixing the nonns under Paragraph 7 of the DPCO 1995 and the reluctance 
of the associations to supply the data. This resulted in the nonns prescribed 
by the notification dated l 31h July, 1999 being re-notified for 2002-2003 
by a notification dated 12•h July, 2002 and for the year 2003-2004 by a 
notification dated 11 •h July, 2003. We do not think it necessary to detail 
the correspondence between the Central Government and the drug 
industry except to say that the non-cooperation and dilly-dallying by the 
industry in providing necessary infonnation and data continued throughout 
th is period. 
76. There were, however, three significant and distinguishing 
features during this period. The first was that the Central Government 
decided to take the services of and involve the Cost Accounts Branch of 
the Department of Expenditure in the Ministry of Finance to undertake 
a study for the development of norms for conversion cost, packing 
charges, and process loss. However, nothing substantive came out of 
this exercise by the Cost Accounts Branch. The second significant 
development was
an unambiguous decision of the drug industry that the 
information required by the NPPA or the Central Government was 
already available in the Cost Audit Reports (CARs) of the various 
companies. The third was the clear view of the drug industry to not 
cooperate at all with the Central Government in the exercise of reviewing 
the norms for conversion cost, packing charges and process loss. 
77. The Indian Pharmaceutical Association wrote to the N PPA on 
9•h March, 2002 to the effect that its Executive Council in a meeting held 
on s•h March, 2002 expressed its inability to participate in the exercise 
for a study to review the norms for conversion cost, packing charges 
and process loss. 
78. Similarly, IDMA communicated to the Cost Accounts Branch 
on I O•h July, 2003 that its Executive Committee had passed the following 
resolution: 
"All the major pharmaceutical companies are covered by 
cost records and cost audit. Hence a cost audit report duly 
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audited by a practicing cost accountant is submitted by these 
companies to the cost audit branch, Department of 
Company Affairs, New Delhi. NPPA should be requested 
to use these readily available audited cost audit reports, for 
the purpose ofrevision of CC/PC norms, instead of asking 
the companies to again send the cost data in separate 
formats which will be voluminous and time consuming for 
the industry." 
79. The Taxation and Pricing Policy Committee of OPP!, addressed 
a letter dated 22nd July, 2003 to the Cost Accounts Branch to the effect 
that the representatives of OPP! and IDMA had suggested in a meeting 
held on 51h July, 2002 with the NPPA that a study of the conversion cost 
and packing charges should be based on the CARs already available 
with the Central Government and that the study should be conducted on 
that basis. 
80. The Cost Accounts Branch informed OPP! by a letter dated 
2nd September, 2003 that a study based "entirely on the information 
available in the cost audit reports might result in the Government not 
obtaining a total picture of the actual conversion cost, packing charges 
and process loss in the drug formulation industry. Our aim, when we 
requested the industry for making available the cost data and other 
information vide our questionnaire, was to take into account the actual 
cost implications of all the factors in the drug industry and not restrict it 
to only
those where the cost audit report is available." It was added that 
despite the availability of the CARs "i~ was considered appropriate to 
frame the questionnaire for seeking the company specific information/ 
data relevant to the study under reference. The questionnaire was 
circulated to the pharmaceutical units with the purpose of safeguarding 
the interest of industry and taking them into confidence to develop the 
realistic CC, PC and PL norms based on the actual cost data/information 
available with the formulation companies." 
81. It will be seen from the above that as far as the drug industry 
was concerned, the CA Rs could form the basis for prescribing the nonns 
as required by Paragraph 7 of the DPCO 1995. On the other hand, the 
Masood Committee had concluded that the data provided through the 
CA Rs was not entirely reliable. That apart, to obtain an overall picture 
of the ground realities, the NPPA, the Central Government and the Cost 
Accounts Branch felt that the information called for through the
! 'NION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
[MADAN 8. LOKUR, J.] 
questionnaires would be more comprehensive and beneficial rather than 
the CARs of a handful of manufacturers/formulators. 
82. On the basis of the above material, the submission of the teamed 
Solicitor General was that the drug industl)' did not extend the necessal)' 
cooperatior expected of it, that the notifications issued by the Central 
Government pfescribing the norms for conversion cost, packing charges 
and process loss were not mechanically issued but were issued after 
due application of mind to the available material and that the decisions 
taken by the Central Government were subject to revision under the 
provisions of~he DPCO 1995 but the manufacturers/formulators did not 
take recourse to these pmvisions and instead approached the Courts 
after much delay and by way of an after-thought. These submissions 
were refuted by the learned counsel appearing for Cipla and other 
manufacturers/formulators. 
Judicial review 
83. The primal)' issues before us relate to (i) the legitimacy and 
soundness of the materials on the basis of which the norms were 
prescribed for application of the formula given in Paragraph Tof the 
DPCO 1995 and on the basis of which the retail price and ceiling price 
of formulations were fixed under Paragraphs 8 and 9 of the DPCO 
1995; (ii) the effect of the failure of the Central Government to prescribe 
the norms under Paragraph 7 of the DPCO 1995 on a yearly basis,
and 
(iii) the effect of the failure of the Central Government to prescribe the 
norms for cost of packing material under Paragraph 7 of the DPCO 
1995. The issue before us does not relate to the actual norms or actually 
fixing the retail price or ceiling price of formulations under Paragraphs 8 
and 9 of the DPCO 1995 in the sense that there is no dispute that forthe 
purposes of fixing the retail price or ceiling price of formulations under 
Paragraphs 8 and 9 of the DPCO 1995 the norms were prescribed and 
the formula given in Paragraph 7 thereof was adhered to. Even otherwise, 
the actual norms and price fixing on the basis of the nonns is out of 
bounds for us. 
(i) Issue of non-application of mind 
84. The first submission oflearned counsel forCipla relates to the 
materials and the non-application of mind resulting in the Central 
Government prescribing the norms under Paragraph 7 of the DPCO 
1995. The challenge to the retail price and ceiling price of formulations 
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fixed through various notifications is only collateral or consequential. In 
its impugned judgment and order the Allahabad High Court held that 
there was no application of mind by the Central Government in prescribing 
the norms for conversion cost, packing charges and process loss. The 
second conclusion is that the Central Government failed to adhere to the 
provisions of Paragraph 7 of the DPCO 1995 in not prescribing the 
norms on a yearly basis. 
85. Although there is no direct challenge to the notification dated 
lJ•h July, 1999 prescribing the norms under Paragraph 7 of the DPCO 
1995 it was submitted that that notification and subsequent notifications 
were issued without any application of mind. It was in this context that 
it had become necessary to make a detailed reference to the Reports of 
the Sankaran Committee, the Masood Committee, the Jharwal 
Committee, the file notings and correspondence which were the materials 
before the Central Government and which led to the issuance of the 
notifications prescribing the norms for conversion cost, packing charges 
and process loss. 
86. Paragraph 7 of the DPCO 1995 consists of two parts -
prescribing the norms and applying those prescribed nonns to the formula 
for arriving at the retail price of a formulation. In the first instance, we 
are concerned with prescribing the norms under Paragraph 7 of the 
DPCO 1995 on the basis of the recommendations
of the Masood 
Committee and the Jharwal Committee sine<: it was contended that there 
was no application of mind in doing so. It may be mentioned thatthere is 
no challenge to the norms prescribed as such v.: the ground of 
arbitrariness or being ultra vires the DPCO 1995 or the Essential 
Commodities Act, 1955. What is presently questioned is only the 
application of mind and the soundness of the materials on the basis of 
which the norms were prescribed, namely, the Masood Committee Report 
and the Jharwal Committee Report. Learned counsel had no criticism of 
the Sankaran Committee Report and indeed generally supported its 
conclusions and recommendations. 
87. A perusal of the Report of the Masood Committee and 
subsequently the Report of the Jharwal Committee clearly brings out 
that the Central Government initiated a detailed exercise for prescribing 
the norms but unfortunately the drug industry did not extend its full 
cooperation in the exercise and declined to provide necessary information
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 
[MADAN B. LOKUR, J.] 
and data despite requests and reminders. Therefore, the Central 
Government was left with no alternative but to notify the norms in 
compliance with the provisions of the DPCO 1995 on the basis of the 
materials already available. The first question is, could the Central 
Governm"'llt rely on these materials? 
88. The Report of the Masood Committee was roundly criticized 
by learned counsel for Cipla since its exercise was hasty and carried out 
without any field visits and without considering ground realities. The 
Report of the Jharwal Committee was also strongly criticized by learned 
counsel. The general line of criticism was that the Reports of the Masood 
Committee and the Jharwal Committee were based on flawed reasoning 
and an incorrect appreciation of the data and facts. As far as the Report 
of the iVlasood Committee is concerned, it was also criticized for not 
recommending the norms- a task it was set up to perform. The Masood 
Committee merely passed on the buck to another expert body for 
conducting an in-depth study for recommending the nonns for conversion 
cost and packing charges. However, it must be said that the Masood 
Committee did some useful work by recommending the norms for cost 
of packing material but that could not be acted upon by the Central 
Government in isolation and in the absence of norms on process loss. A 
significant observation of the Masood Committee related to the
stipulation 
for a yearly notification of norms in terms of the DPCO 1995. The 
Report of the Jharwal Committee was criticized for taking, amongst 
others, an unrealistic view of the inflation factor and not really adding 
anything of value to the Report of the Sankaran Committee. 
89. There is no doubt that the Masood Committee Report was the 
justification for the Central Government not revising the norms 
recommended by the Sankaran Committee and the Report of the Jharwal 
Committee was the basis for revising the norms as notified on 1 J'h July. 
1999. These Reports were the antecedent material available with the 
Central Government for the purposes of Paragraph 7 of the DPCO 
1995. Can this "antecedent material" be subject to judicial review or 
judicial scrutiny and if so to whot extent? 
90. The "..:teria for price fixing can be statutory or non-statutory 
(such as a Report). This distinction was brought out in R"ylllltseemlt 
Paper Mills Ltd. v. Government of A.P.1• In that decision, a committee 
of officials was appointed to consider the factors relating to fixing the 
'(2003) 1 sec 341 
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rates of royalty on the forest produce to be supplied to wood-based 
industries on a sustained basis, and to make recommendations to the 
Government. The committee made its recommendations which were 
accepted by the State Government and an appropriate G.O.Ms was 
issued. The result of the G.O.Ms was that the royalty for bamboo went 
up considerably and continued to rise every year. The G.O.Ms was then 
challenged in a writ petition. 
91. The submission made by the appellants in that case was that 
even though "price fixation is neither the function nor the forte of the 
court, it is neither concerned with the policy nor the rates. But the court 
cannot deny to itself the jurisdiction to enquire into the question, in 
appropriate proceedings, whether relevant considerations have gone in 
and irrelevant considerations kept out of the determination of the price." 
92. In that context and in response to the submission made, this 
Court drew a distinction between price fixation governed by statutory 
considerations and price fixation governed by non-statutory 
considerations. It was held that on this basis Union of bu/ill v. Cy11<1mitle 
Indi<1 Ltd. & Allf. 3 was distinguishable since it dealt with price fixation 
based on statutory considerations. In a case of price fixation having its 
origin on non-statutory materials the scope of judicial scrutiny would be 
far less. It was said in paragraph 15 of the
Report as follows: 
"This Court was examining [in Cy1w111ide flu/ill] the scope 
of judicial scrutiny in the matters of price fixation where it 
was governed by statutory provisions. The scoµ~ ofjudicial 
scrutiny would be far less where the price fixatiou is not 
governed by the statute or a statutory order. Where the 
legislature has prescribed the factors which should 
be taken into consideration and which should guide 
the determination of price, the courts would examine 
whether the c~msiderations for fixing the price 
mentioned in the statute or the statutory order have 
been kept in mind while fixing the price and whether 
these factors have guided the determination. The 
courts would not go beyond that point. In the present 
appeals, there is no law, or any statutory provision laying 
down the criteria or the principles which must be followed, 
or which must guide the determination of rates of royalty. 
' < 1987) 2 sec no
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 
[MADAN B. LOKUR, J.] 
No doubt, any arbitrary action taken by the State would be 
subject to scrutiny by the courts because arbitrariness is 
the very antithesis of rule of law. But this does not mean 
that this Court would act as an Appellate Authority over 
the determination ofrates ofroyalty by the Government. .... 
It is open to the Government to fix such price as it thinks 
appropriate having regard to public interest, which inter alia, 
may include interest of revenue, environmental, ecology, 
the need of mi II s and the requirements of other consumers. 
The price is not to be fixed keeping in mind the requirements 
of the mills alone." [Emphasis supplied]. 
93. Jn these appeals, we too are presently concerned with a stage 
anterior to actual price fixation namely recommending and prescribing 
the norms that would eventually form the basis for fixing the retail price 
and ceiling price of formulations. The view expressed in R"ylllllseenw 
Pllper Mills would, in our opinion, apply to the Reports of the Masood 
Committee and the Jharwal C0mmittee set up by the Central Government 
for recommending the norms for the purposes of Paragraph . 7 of the 
DPCO 1995. The Reports were antecedent materials, non-statutory and 
recommendatory and could have been rejected by the Central 
Government. The Masood Committee did not (and perhaps could not) 
recommend any norms for conversion cost, packing charges and process 
loss, except
for cost of packing material (without process loss). The 
Masood Committee was alive to the statutory requirement of prescribing 
the norms on a yearly basis and therefore referred to it. 
94. However, as far as the Report of the Jharwal Committee is 
concerned, the Central Government accepted and implemented it by 
issuing a notification on I 31h July, 1999 under Paragraph 7 of the DPCO 
1995 - but still did not prescribe the norms for cost of packing material 
recommended by the Masood Committee, an issue that will be considered 
later. 
· 
95. While learned counsel for Cipla might have serious differences 
of opinion with the recommendations of these particular non-statutory 
Reports, generally a challenge to Reports prepared by expert bodies is 
not easy but is subject to lesser judicial scrutiny. To rephrase what was 
said in Prllg Ice mu/ Oil Mills mu/ A11r. v. U11io11 of /11dill' a factor 
here or a factor there that should have been taken into account but has 
'(1978) 3 sec 459 
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been ignored should not invalidate the Reports -mere errors in the Reports 
are not subject to judicial review. 
96. That there can be a legitimate difference of opinion (sometimes 
serious) between two expert bodies is not at all unusual. In Sllrl Sltftram 
Sugar Co. Lttl. v. Union of I11ditt1 the decision of the Central 
Government was supported by the recommendations of the Tariff 
Commission. These recommendations were criticized in some respects 
by the BICP. Some members of the sugar industry accepted the views 
of the Central Government while some did not. Considering the overall 
circumstances, the Constitution Bench observed that the conclusions of 
the Central Government are expert conclusions which were not shown 
to be arbitrary, discriminatory, unreasonable or ultra vi res. Reliance was 
placed upon the following passage from Rllilrolld Commission of Texlls 
v. Rowan & Nie/tots Oil Company6: 
"Nothing in the Constitution warrants a rejection of these 
expert conclusions. Nor, on the basis of intrinsic skills and 
equipment, are the federal courts qualified to set their 
independent judgment on such matters against that of the 
chosen State authorities .... When we consider the limiting 
conditions of litigation -
the adaptability of the judicial 
process only to issues definitely circumscribed and 
susceptible of being judged by the techniques and criteria 
within the special competence
oflawyers- it is clear that 
the Due Process Clause does not require the feel of the 
expert to the supplanted by an independent view of judges 
on the conflicting testimony and prophecies and impressions 
of expert witnesses". 
This observation is of even greater significance in the 
absence of a Due Process Clause." 
97. The feel of the expert is important, if not conclusive. Insofar 
as we are concerned, two expert Committees made their 
recommendations. These recommendations were then examined and 
considered by the Central Government and on the basis of the expert 
conclusions arrived at, the nonns were prescribed by a notification dated 
J3th July, 1999 issued under Paragraph 7 of the DPCO 1995. Under the 
circumstances, the question of judicial scrutiny of the Reports of the 
'(1990) 3 sec 223 
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UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
[MADAN B. LOKUR, J.) 
Masood Committee and the Jharwal Committee and the acceptance of 
their recommendations by the Central Government is not only limited, 
but in this case it does not arise. It cannot be said that the notification 
dated lJ•h July, 1999 was based on no material or was issued without 
any application of mind. Learned counsel for Cipla may disagree with 
the contents of the materials, but cannot ignore their existence or that 
they were considered by the Central Government. 
98. Fixing the price of any commodity is not only difficult but also 
tricky. There is material to be considered; a bundle of factors to be 
considered and appropriate weight is to be given to the material and the 
factors. This is not easy to decide and there will always be some criticism 
with regard to either the material utilized or the factors considered or the 
weight attached to the materials and factors. In matters pertaining to 
drug formulations, it is not only an issue of demand and supply but also 
the ability of a common person to afford the formulation. At the same 
time, the manufacturer must also make some profit and be in a position 
to invest in research and development. There simply cannot be any 
mathematical precision in fixing the price of a commodity. More than 
enough elbow room or a play in the joints is required to be given in such 
matters- and even then the price fixing authority may commit an error. 
Once this
is appreciated, it wil 1 be realized that the task before the Central 
Government in prescribing the norms was not easy. 
Failure to consider the cost audit reports 
99. Learned counsel for Cipla contended that assuming the drug 
industry did not extend any cooperation in providing necessary data, the 
CARs were nevertheless material available and they could be and should 
have been made use of for recommending the norms by the Masood 
Committee and the Jharwal Committee to the Central Government. In 
other words, relevant material was not considered. 
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I 00. The value or utility of the CARs has already been mentioned 
above, which is that the Masood Committee did not find the information 
contained in whatever CARs were available to. be fully reliable. This 
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view was accepted by the Central Government. Even the Cost Accounts 
Branch of the Department of Expenditure in the Ministry of Finance did 
not find the CA Rs of particular use for the purposes of prescribing the 
norms. Additionally, no study could be based entirely on the CARs. We 
must accept the opinion of expert bodies in this regard. We do not have 
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any contrary expert opinion on the subject and must go by the existing 
expert views. Proceeding on this basis, it would be incorrect on the part 
of Cipla and indeed the drug industry to say and contend that whatever 
information is required by the Central Government for fixing the norms 
was already available in the CA Rs and nothing more need be supplied to 
the Central Government. 
I 0 I. Assuming the submissiori of Cipla and the drug industry to be 
correct, it would certainly not have been a problem at all for each company 
to fill up the questionnaires sent by each of the Committees, if all the 
information required by the questionnaires was already available in the 
CAR of each company. Assuming again that the required information 
could be extracted by each Committee from the CAR, it could more 
easily be extracted by each company from its own CAR and provided to 
the Masood Committee and the Jharwal Committee. Under these 
circumstances, it is inexplicable why the drug industry declined to fill up 
the questionnaires sent to their member companies from time to time. 
There is certainly more to it than meets the eye. 
I 02. It is true, as contended by learned counsel for Cipla that no 
manufacturer/formulator is under an obligation to furnish whatever 
information is required by the Central Government including information 
that might be confidential. But that does not mean that absolutely no
information should be supplied by any company or incomplete information 
should be supplied by a very few of them. It would certainly be more 
appropriate for each company to have responded to the questionnaires 
sent with a communication that some particular information is not being 
furnished for reasons of confidentiality. But no such courtesy was 
extended. While there may not be a statutory obligation on each 
manufacturer/formulator to furnish information for prescribing the norms, 
there is certainly a moral and social obligation on them to furnish 
information so that appropriate norms could be notified not only for their 
benefit but also for the benefit of the consumers. The preamble to the 
Essential Commodities Act, 1955 cannot be forgotten. By not furnishing 
the information required, the drug industry pushed the Central Government 
into a corner leaving it with no option but to prescribe the norms on the 
basis of available material and later re-notify the norms. 
103. lt is also true that fixing the price of formulations based on 
the norms prescribed under Paragraph 7 of the DPCO 1995 is a legislative 
activity which the Central Government was obliged to carry out on its
UNION OF INDIA & ORS. v. M/S. ClPLA LTD. & ANR. 
[MADAN B. LOKUR, J.] 
own research and assessment, assuming there was no cooperation from · 
the manufacturers/formulators. The efforts made by the Masood 
Committee and the Jharwal Committee for prescribing the norms for 
the purposes of Paragraph 7 of the DPCO 1995 were steps leading up 
to this legislative activity. It is nobody's case that no preliminary steps 
were taken or that no exercise was undertaken for arriving at appropriate 
norms - the steps and exercise were in fact undertaken through expert 
Committees but the material used in the exercise and the resultant Reports 
were criticized by learned counsel appearing for Cipla. We are of the 
view that given the circumstances that the two Committees were faced 
with and given the virtual non-cooperative attitude of the drug industry, 
the Central Government prescribed the norms and Cipla and the drug 
industry were obliged to accept them as notified without much ado. It 
cannot be that the drug industry does not supply necessary information 
and data to the expert Committees appointed by the Central Government 
and then blames the Central Government for taking a decision without· 
necessary information and data. 
I 04. The failure of the drug industry to extend effective cooperation 
appears to be an endemic problem. A situation somewhat similar to the 
one that we are concerned with had arisen in Union of lnclhl v. Swiss 
Garnier Life Sciences. - In that decision,
it was noticed by this Court 
that communications were sent to the manufacturers/formulators of a 
particular formulation to provide reasons why that formulation should 
not be classified as a derivative of another formulation. In paragraph 4 
of the Report, it was noted that the requisite information was not 
furnished, even after a substantial lapse of time and a reminder. This 
observation was reiterated in paragraph 44 of the Report and it was held 
that in view of the refusal of the manufacturers/formulators to furnish 
the detailed information, the Central Government was well within its 
jurisdiction to resort to Paragraph 11 of the DPCO 1995 and fix the 
price ofthe formulation on the basis of information available. 
I 05. Similarly, in Secretary, Ministry of Cltemicais and 
Fertilizers v. Cipla Ltd. 8 it was observed by this Court in paragraph 8.4 
of the Report that bulk drug producers did not disclose necessary 
information to the Central Government, despite a request having been 
made in that regard and that there was no good reason why the relevant 
information should be withheld. It was observed: 
1 (2013) s sec 615 
• (2003) 1 sec 1 
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"Sales of bulk drugs effected during the year by bulk drug 
producers including some of the respondents herein would 
have furnished the best indicia of domestic sale turnover of 
bulk drug. But, those details were not disclosed. Secondly, 
if the bulk drug produced was consumed by any bulk drug 
producer or importer and the drug was sold in the form of 
formulations, the statistics regarding the quantum of bulk 
drug utilized in such formulations and the value thereof must 
have been within the knowledge or reach of the writ 
petitioners and there is no good reason why they should 
withhold all this relevant information and harp on the ORG 
data. There is no need to resort to guesswork when the 
actual figures are available at the doorsteps of the 
respondents." 
I 06. Be that as it may, our conclusion on this aspect of the matter 
is that the antecedent materials (the Reports) on the basis of which the 
norms were recommended and then prescribed under Paragraph 7 of 
the DPCO I 995 are subject to lesser judicial scrutiny, limited perhaps 
only to the application of completely erroneous principles. The burden 
for demonstrating the application of completely erroneous principles is 
heavy as it is and it is heavier still ifthe antecedent material is prepared 
by experts. The onus of discharging the heavy burden must necessarily 
fall on the challenger, and Cipla has not been able to sustain the challenge.
There can be and are differences of opinion but we cannot and will not 
reconsider the opinion of experts, particularly in matters of economic 
affairs or other economy related issues unless there is extremely strong 
reason to do so. 
107. We end this discussion with a conclusion arrived at by the 
Constitution Bench in Sltri Sitar(lnt Sug(lr Co. Ltd. in paragraph 49 of 
the Report: 
"Where a question of law is at issue, the court may 
determine the rightness of the impugned decision on its own 
independent judgment. If the decision of the authority does 
not agree with that which the court considers to be the 
right one, the finding of law by the authority is liable to be 
upset. Where it is a finding of fact, the com1 examines only 
the reasonableness of the finding. When that finding is found 
to be rational and reasonably based on evidence, in the sense
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
[MADAN B. LOKUR, J.] 
that all relevant material has been taken into account and 
no irrelevant material has influenced the decision, and the 
decision is one which any reasonably minded person, acting 
on such evidence, would have come to, then judicial review 
is exhausted even though the finding may not necessarily 
be what the court would have come to as a trier of fact. 
Whether an order is characterised as legislative or 
administrative or quasi-judicial, or, whether it is a 
determination of law or fact, the judgment of the expert 
body, entrusted with power, is generally treated as 
final and the judicial function is exhausted when it is 
found to have ''warrant in the record" and a rational 
basis in law: See Rochester Tel. Corp. v. United States9• 
See also Associated Provincial Picture Houses Ltd. v. 
Wednesbury Corporation 1''." [Emphasis supplied] 
This view was reaffirmed in paragraph 58 of the Report in the 
following words: 
"Price fixation is not within the province of the courts. 
Judicial function in respect of such matters is 
exhausted when there is found to be a rational basis 
for the conclusions reached by the concerned 
authority. As stated by Justice Cardozo in Mississippi 
Valley Barge Line Company v. United States of America. 11 
"The structure of a rate schedule calls in peculiar measure 
for the use of that enlightened judgment which the 
Commission by training and experience is qualified to 
fonn
.... It is not the province of a court to absorb this 
function to itself .... The judicial function is exhausted 
when there is found to be a rational basis for the 
conclusions approved by the administrative body." 
[Emphasis supplied] 
I 08. For the above reasons we disagree with the Allahabad High 
Court and hold that the various notifications issued under Paragraph 7 of 
the DPCO 1995 in 1999 and thereafter prescribing the norms for 
conversion cost, packing charges and process loss of raw materials (other 
9 307 US 125 (1939): 83 Led 1147 
iu (1948) I KB 223: (1947) I All ER 498 
11 292 US 282. 286-287 : 78 Led 1260. 1265 
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than packing materials in conversion) and packing and process loss of 
packing materials in packaging were issued after due application of mind 
and based on available material duly examined by an expert body. The 
notifications were not arbitrarily issued nor were they discriminatory in 
any manner at all nor were they issued mechanically nor could it be said 
that they were issued without any application of mind. 
Re-notification of norms 
I 09. Another facet of the submission oflearned counsel for Cipla 
was that the same norms prescribed by the notification dated 13tl'July, 
1999 could not have been notified mechanically year after year and the 
fact that the norms were simply re-notified from 2000 to 2003 is a clear 
indication of non-application of mind by the Central Government to the 
issue at hand. In response, the learned Solicitor General referred to Shri 
Malaprablla Coop. Sugar Factory v. Union of India. 1" 
In that 
decision, it was noted that the levy sugar prices for the 1975-76 sugar 
season were notified at the same level as those in the previous season. 
This Court took the view that the re-notification could not be faulted on 
grounds of arbitrary exercise of power for several reasons mentioned in 
paragraph 84 of the Report. In other words, the concept or principle of 
re-notification is not unheard of and there is no illegality per se in re-
issuing the norms without any change, but
the reasons for re-notification 
ought to exist - re-notification should not be a short-cut method to be 
routinely employed. 
110. What then are the reasons that prompted the Central 
Government to re-notify the norms prescribed by the notification dated 
J3•h July, 1999? On the one hand, there was virtual non-cooperation 
from the drug industry in providing information to the Central Government 
despite repeated requests and reminders even by expert Committees 
constituted for the purpose. On the other there was a perceived statutory 
obligation on the Central Government to notify the norms every year 
and that responsibility could not be effectively discharged without the 
cooperation of the drug industry. Therefore the Central Government, 
faced with an extra-ordinary situation and a stalemate putting the 
consumers of an essential commodity at the mercy of the drug industry, 
had no option but to re-notify the existing norms in public interest on the 
basis of the available material. 
"<I994J 1 sec 648
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 
[MADAN B. LOKUR, J.] 
111. We have adverted to the issues that confronted the Central 
Government during this period, namely, the unambiguous decision of the 
drug industry not to extend any cooperation to the Central Government 
in arriving at appropriate norms for the purposes of Paragraph 7 of the 
DPCO 1995. The views of the Indian Pharmaceutical Association and 
the IDMA have already been referred to. The insistence of the drug 
industry to 'vvork out the norms on the basis of the CARs was another 
stumbling block staring at the face of the Central Government. The Cost 
Accounts Branch of the Department of Expenditure in the Ministry of 
Finance, a neutral body in that sense, had clearly expressed the view 
that the norms could not be effectively determined only on the basis of 
the CARs. Finally, the non-cooperation of the drug industry from October 
1998 onwards was another road block. The overall attitude of the drug 
industry appears to be one of profit making or preserving commercial 
interests, while the concern should really be of promoting consumer 
interest. Faced with these competing interests, the Central Government 
sided with the consumer and cannot be faulted for it. The Central 
Government did not act in a routine or mechanical manner in re-notifying 
the norms every year from 2000 onward. In our opinion, the explanation 
put forward by the learned Solicitor General deserves acceptance. 
112. We conclude
that the re-notification of the prescribed norms 
in the period 2000 to 2003 was not mechanical or without any application 
of mind. The materials were before the Central Government and there 
was no change in the content of the materials. If there was, the drug 
industry failed to effectively point it out as a result of their non cooperative 
attitude. We also hold that re-notification of the prescribed norms is per 
se not impermissible and in the present case it was justified in the 
circumstances. 
Challenge to the actual norms prescribed 
113. In Prag Ice & Oil Mills it was held that price fixation is 
really legislative in character since it satisfies the tests of legislation. 
Similarly, in Cymtmide India it was held that price fixation is more in 
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the nature of a legislative activity than in any other. Price fixation may 
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affect manufacturers and producers or commodities but those who are 
most vitally affected are the consumers. Similarly, in Glaxosmitllkli11e 
Pllarmaceuticals Ltd. v. Union of India1-' it was held that price fixation 
by the Central Government under the DPCO is in the nature of a 
"(2014) 2 sec 753 
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legislative measure and the dominant object and purpose of such price 
fixation is the equitable distribution and availability of commodities at a 
fair price. A similar view was expressed by a Constitution Bench of this 
Court in Sltri Sitaram Sugur Compllny Ltd. when it was said: "Price 
fixation is in the nature of a legislative action even when it is based on 
objective criteria founded on relevant material." In Suruswuti Inc/ustria/ 
Syndicate Ltd. v. Union of Indill14 this Court was more specific when 
it said that "Price fixation is more in the nature of a legislative measure 
even though it may be based upon objective criteria found in a report or 
other material." 
114. The norms fixed by the Central Government are of general 
application, they are not intended to benefit or harm any particular 
manufacturer or formulator and indeed no manufacturer or formulator 
is required to be heard (or was heard) in the detennination, they are 
notified in the Official Gazette forthe information of the general public 
and in arriving at the norms the general attributes oflegislative activity 
are attended to by the Central Government for the benefit of the 
consumers. The notification of the norms therefore has the character of 
legislative activity. 
115. No submission was made before us to the effect that the 
formula given in Paragraph 7 of the DPCO 1995 was not applied proprio 
vigore by the Central
Government. The statutory criterion for price fixing 
is the formula given in Paragraph 7 of the DPCO 1995. Whether this 
formula has been operated as it should be is certainly subject to judicial 
review. Therefore, while operating the formula, ifthe Central Government 
did not take conversion cost into consideration (for example) or took into 
consideration some factor not in the formula then, the Court could certainly 
strike down the retail price or the ceiling price so fixed by the Central · 
Government on the ground that relevant factors were ignored or irrelevant 
factors were taken into consideration. No such allegation was made and 
no such contention was advanced by learned counsel for Cipla. 
Therefore, we need not dwell on this aspect. 
(ii) Yearly prescription of norms 
116. lt may be recalled that prior to 1995, the norms for conversion 
cost, packing charges and process loss of raw materials (other than 
packing materials in conversion and packing) and process loss of packing 
"(1974) 2 sec 630
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 
[MADAN 8. LOKUR, J.] 
materials in packaging were prescribed by notifications issued on 17m 
February, 1989 and I 51h July, 1993 in exercise of powers conferred by 
Paragraph 6 of the DPCO 1987. When the DPCO 1995 was issued, it 
provided for a 'transitional' provision through Paragraph 8(5) and 
Paragraph 27 thereof. 
11 ·i'. Paragraph 8(5) of the DPCO 1995 provides that the retail 
price of a scheduled formulation shall, until the retail price thereof is 
fixed under the DPCO 1995, be the price which prevailed immediately 
before the commencement of the DPCO 1995. 15 Paragraph 8 of the 
DPCO 1995 reads as follows: 
"8. Power to fix retail price of scheduled formulations. 
-(I) The Government may, from time to time, by order, fix 
the retail price of a Scheduled formulation in accordance 
with the formula laid down in para. 7. 
(2) Where the Government fixes or revises the price of 
any bulk drug under the provisions of this Order and a 
manufacturer utilises such bulk drug in his scheduled 
formulations he shall, within thirty days of such fixation or 
revision, make an application to the Government in Form 
Ill for price revision of all such formulations and the 
Government may, if it considers necessary, fix or revise the 
price of such formulation. 
(3) The retail price of a formulation on.ce fixed by the 
Government under sub-paragraphs (I) and (2) shall not be 
increased by any manufacturer except with the prior
approval of the Government. 
( 4) Any manufacturer, who desires revision of the retail 
price of a formulation fixed under sub-paragraph ( 1 ), shall 
make an application to the Government in Form III or Form 
IV, as the case may be, and the Government shall after 
making such enquiry, as it deems fit within, a period of two 
months from the date of receipt of the complete infonnation, 
fix a revised price for such formulation or reject the 
application for revision for reasons to be recorded in writing. 
" ·'Retail price includes ceiling price (fixed under Paragraph 9 of the DPCO 1995). 
Retail price is defined in Paragraph 2(s) of the DPCO 1995 as follows: "retail price" 
means the retail price of a drug arrived at or fixed in accordance with the provisions of 
this Order and includes a ceiling price.'" 
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(5) Notwithstanding anything contained in the foregoing sub-
paragraphs the retail price of a scheduled formulation, of a 
manufacturer shall, until the retail price thereofis fixed under 
the provisions of this Order, be the price which prevailed 
immediately before the commencement of this Order, and 
the manufacturer of such formulation shall not sell the 
formulation at a price exceeding the price prevailing 
immediately before the commencement of this Order. 
(6) No manufacturer or importer shall market a new pack, 
if not covered under sub-paragraph 3 of para 9, or a new 
formulation or a new dosage form of his existing scheduled 
formulation without obtaining the prior approval of its price 
from the Government. 
(7) No person shall sell or dispose ofany imported scheduled . 
formulation without obtaining the prior approval of its price 
from the Government." 
Similarly, Paragraph 27 of the DPCO 1995 provides that any 
notification issued under the DPCO 1987, unless it is inconsistent with 
its provisions will be deemed to have been issued under the corresponding 
provision of the DPCO 1995. Paragraph 27 of the DPCO 1995 reads as 
follows: 
"27. ~epeal and saving.- (I) The Drugs (Prices Control) 
Order, 1987 is hereby repealed. 
(2) Notwithstanding such repeal, anything done or any action 
taken, including any notification or Order made, direction 
given, notice issued or exemption granted under the
Drugs 
(Prices Control) Order, 1987, shall in so far as it is not 
inconsistent with the provisions of this Order, be deemed to 
have been done taken, made, given, issued or granted, as 
the case may be, under the corresponding provisions of this 
Order." 
Ex facie therefore, there is no error in continuing the norms 
prescribed under the DPCO 1987 even after the promulgation of the 
DPCO 1995. However, the question is whether this arrangement can 
continue indefinitely? 
118. The DPCO 1995 came into operation on 6'h January, 1995.
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 
[MADAN B. LOKUR, J.] 
Ordinarily therefore the first notification under Paragraph 7 thereof ought 
to have been issued in July 1995, or soon thereafter. (We were told by 
the learned Solicitor General that the year for prescribing the nonns is 
from July to June of the following year. It is for this reason that the 
various notifications under Paragraph 7 of the DPCO 1995 were issued 
in July). Perhaps the Masood Committee was constituted on 24th April, 
1995 forth is purpose and initially it was required to submit its Report on 
or before 30th June, 1995 but time was extended till 31" August, 1995. 
119. Whatever be the position, the fact is that the Central 
Governme:it did not notify the norms on a yearly basis for four years 
1995-1996, 1996-1997, 1997-1998 and 1998-1999. We are really 
concerned with the default for this period. The NPPA was set up on 29th 
August, 1997 and the Jharwal Committee was set up on 8'
11 October, 
1998 more than two years and three years respectively after the DPCO 
I ~95 was issued. The purpose of setting up the Jharwal Committee was 
to revise the norms applicable since 15th July, 1993. Pursuant to the 
Report of the Jharwal Committee the Central Government did issue a 
notification on ] )th July, 1999 under Paragraph 7 of the DPCO 1995. On 
the issue under consideration, we are presently not concerned with the 
period 1999 onwards till 2004. 
120. Paragraph 7 of the DPCO 1995 gives the
formula for arriving 
at the retail price of a formulation. The application of the formula is 
undoubtedly mandatory and the Central Government cannot contend 
that the retail price of a fonnulation can be fixed de hors the formula. 
The question i$ whether the norms mentioned in Paragraph 7 of the 
DPCO 1995 are required to be prescribed every year even ifthere is no 
perceived qualitative or quantitative change in them. In other words, is 
the prescription of norms every year mandatory even though 
circumstances do not warrant any such prescription and what is the 
consequence ifthe Central Government does not prescribe the norms 
every year- is it fatal to the notifications issued under Paragraphs 8 and 
9 of the DPCO 1995 whereby the retail price and ceiling price of 
formulations was fixed? 
12 l The purpose of detennining and prescribing the norms every 
year is limited to the requirement of fixing the retail price of formulations 
in terms of the fonnula given in Paragraph 7 of the DPCO 1995. The 
Central Government set up the Masood Committee in April 1995 precisely 
for this purpose. However its work was stymied by the drug industry 
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through its non-cooperation. It is true that notwithstanding the road block 
set up by the drug industry, the Central Government could very well 
have determined and prescribed the norms as required by Paragraph 7 
of the DPCO 1995. Why didn't the Central Government do so? 
122. There are several reasons that can be culled out from the 
Report of the Masood Committee for the Central Government not 
determining and prescribing the norms in 1995 and thereafter for the 
next three years. Firstly, according to the Masood Committee the drug 
industry had been provided a sufficient cushion by the acceptance of the 
recommendations of the Sankaran Committee. Under the circumstances 
continuing with the norms for conversion cost and packing charges 
prescribed under the DPCO 1987 would not have disadvantaged the 
manufacturers/fonnulators in any manner. 
123. Secondly, the packing material ceilings had been recently 
upwardly revised from Th July, 1994 and the manufacturers/formulators 
could take advantage of the cost of packing material on actuals. Surely, 
this was beneficial to them. 
124. Thirdly, according to the Masood Committee with high 
production levels and better capacity utilization as well as new 
technological processes, the process loss on raw materials and packing 
material ought to have come down. But since the drug industry did not 
provide necessary information through the questionnaire sent to
the drug 
industry and the companies, an ad hoc reduction in the existing norm for 
process loss fixed by the Sankaran Committee was not recommended 
by the Masood Committee. This too was to the advantage of the 
manufacturers I formulators. Actually, the Masood Committee expressed 
the view that the existing nonns for process loss on raw materials and 
packing materials was on the high side. 
125. Fourthly, the Masood Committee noted that there was a 
decrease in total formulation activity coming under price control from 
70% under the DPCO 1987 to 50% under the DPCO 1995 and uniform 
MAPE of 100% under the DPCO 1995 as against 75% and 100% 
MAPE under the DPCO 1987. Even this was advantageous to the 
manufacturers/formulators. 
126. Whichever way the issue is looked at, it is clear that the 
manufacturers/formulators were not put to any disadvantage in the retail 
price fixed on the basis of the norms prescribed under the DPCO 1987.
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
587 
[MADAN B. LOKUR, J.] 
Therefore, we are of opinion that under these circumstances, the bona 
A 
fides of the Central Government in not prescribing the norms every 
year certainly cannot be doubted. 
127. That apart, the provisions of Paragraph 8(5) and Paragraph 
27 of the DPCO 1995 come to the aid of the Central Government and 
-these provisions enabled the continuation of the norms prescribed under 
Paragrap)l 6 of the DPCO 1987 and saved the notifications issued under 
the provisions of Paragraphs 8 and 9 of the DPCO 1995. This 
'arrangement' certainly could not have carried on indefinitely, but the -
recalcitranc~ of the drug industry pushed the Central Government into a · 
corner leaving it with little option but to continue the 'arrangement' till an 
alternative was found through an in-depth study. This is pl:rhaps where 
the Central Government erred. It should have set up the NPPA soon 
after announcing the new Drug Policy in I 994 and it should have enacted 
a legislation constituting the National Drug Authority in terms of the 
Drug Policy, 1994. Had these steps been taken, the Central Government 
would not have to face litigation in different parts of the country. What is 
tragic is that even today, there does not seem to be any sign of the 
Central Government taking any steps to constitute a statutory National 
Drug Authority. 
128. But be that as it may, although several notifications issued 
between 1995 and
1999 were collaterally challenged- by the 
manufacturers/formulators, we were not shown any notification in which 
the retail price or the ceiling price was varied to their detriment. Assuming 
there was such a notification, a manufacturer/formulator was entitled to 
question the adverse revision by moving an application u_nder the 
provisions of Paragraph 8(4) and Paragraph 22 of the DPCO 1995. No 
such application was moved by any manufactureffformulator. Paragraph 
22 thereof reads as follows: 
"22. Power to review.- Any person aggrieved by any 
notification issued or order made under paras. 3, 5, 8, 9 or 
I 0 may apply to the Government for a review of the 
notification or order within fifteen days of the date of 
pubfa:qtion of the notification in the Official Gazette or the 
receipt of the order by him, as the case may be, and the 
Government may make such order on the application as it 
may deem proper : 
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Provided that pending a decision by the Government on 
the application submitted under the above paragraph, no 
manufacturer, importer or distributor, as the case may be, 
shall sell a bulk drug or formulation, as the case may be, at 
a price exceeding the price fixed by the Government of 
which a review has been applied for." 
It was contended that a revision could not be sought since norms 
were not fixed and for the purposes of challenging the retail price or the 
ceiling price fixed under Paragraphs 8 and 9 (as the case may be) ofthe 
DPCO 1995 it was necessary to know the norms fixed. We propose to 
deal with this issue a little later. 
129. A question of seminal importance arises, namely, whether the 
legislative activity of prescription of norms every year is at all necessary 
even if there is no occasion to change or modify the retail price of a 
formulation. Is the exercise of determining the norms by the Central 
Governments required to be mechanically carried out every year as a 
ritual? Perhaps not. It is not necessary to revise the retail price or 
ceiling price of every formulation every year - and if there is no such 
mandate, then it must follow that there is no mandate to prescribe the 
norms every year under Paragraph 7 of the DPCO just for the sake of 
it. What consumer interest would an annual change in retail price serve 
in the context of over 2000 formulations? What has to be seen by
the 
Central Government, in the larger context, is whether the drug industry 
is losing out in any manner and whether the consumers of formulations 
are being put to any discomfort. A fine balance has to be struck and if 
the Central Government has been successful in doing that, as it appears, 
then carrying out an annual ceremonial procedure or annual academic 
exercise of determining and prescribing the norms under Paragraph 7 of 
the DPCO 1995 regardless of whether there is any necessity to do so is 
not mandatory. 
130. The Central Government cannot be compelled to perform a 
legislative activity or legislative exercise that is of no consequence and 
is perhaps ritualistic. We are ofopinion that while the formula given in 
Paragraph 7 of the DPCO 1995 must be mandatorily adhered to for 
fixing the retail price of a formulation, the requirement of prescribing the 
norms every year is discretionary and would depend upon the exigencies 
of the situation - it might be every year or less frequently or more 
frequently.
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
[MADAN 8. LOKUR, J.] 
131. It was also contended by learned counsel for one of the 
respondents before us that there was a qualitative difference between 
the DPCO 1987 and the DPCO 1995 in as much as under the DPCO 
1987 the norms were required to be prescribed from time to time under 
Paragraph 6 thereof. However, .as far as the DPCO 1995 is concerned 
the norms were required to be prescribed on a yearly basis under 
Paragraph 7 thereof. The submission was that the principles known as 
Heydon s mischief rule 16 are clearly applicable and there was a 
conscious decision by the Central Government to switch over from 
prescribing the norms from time to time to fixing the norms on a yearly 
basis. Since the norms were not fixed on a yearly basis under the DPCO 
1995, the retail prices fixed by the Central Government on the formulations 
on the basis of Paragraph 7 of the DPCO 1995 were illegal and liable to 
be struck down. 
132. What was the mischief, if any, sought to be remedied? Nothing 
has been told to us in this regard by learned counsel. Given the scheme 
of the DPCO 1995 there was no mandate of prescribing the norms 
under Paragraph 7 of the said DPCO every year. We therefore merely 
note the submission for whatever it is worth. 
(iii) Failure ~o prescribe the norms for cost of packing material 
133. We may recall that the Sankaran Committee had noted that 
the norms for cost of packing material were not prescribed from
1979 
onward. Far from objecting to this, the drug industry had itself requested 
the Sankaran Committee to permit the cost of packing material to be 
taken on actuals. The Sankaran Committee accepted this suggestion 
while taking into account the inherent difficulty in prescribing any norm 
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for cost of packing materials. We may draw attention to the notification 
dated J 71h February, 1989 followed by the notification dated l 5'h July, 
)993 both issued under Paragraph 6 of the DPCO 1987 in this regard. 
Neither notification made any provision for cost of packing material as a 
norm. The notification dated l 7•h February, 1989 prescribe.d norms for 
conversion cost, packing charges and process loss of raw materials (other . 
than packing materials in conversion and packing) and process loss of 
G 
packing materials in packaging. The notification dated J 5•h July, 1993 
prescribed norms only for conversion cost and packing charges. No 
manufacturer or formulator made any grievance or complaint regarding 
the failure of the Central Government to prescribe the cost of packing 
16 Heydon's Case, Neutral Citation Number: [1584) EWHC Exch 136 
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material as a norm. 
134. The situation has not changed at all over the years. The silence 
of the drug industry continued as is evident from the fact that even 15 
years later a notification was issued by the Central Government on 11th 
August, 2004 under Paragraph 7 of the DPCO 1995 prescribing the 
norms for conversion cost, packing charges and process Joss of raw 
materials (other than packing materials in conversion and packing) and 
process loss of packing materials in packaging - but not for cost of 
packing material as a norm. Despite this, we were told by learned counsel 
appearing for the parties that there has been no dispute about price 
fixation since 2004 due to the absence of a norm for cost of material. 
13 5. In other words, it does appear to us that the drug industry 
was content with being allowed to take the cost of packing material on 
actuals rather than insisting on the Central Government issuing a 
notification prescribing the nonns for cost of packing material. We believe 
that in fact there was no necessity of fixing the cost of packing material 
as a norm for the purposes of Paragraph 7 of the DPCO 1995 and that 
there was no fatal error in the notifications issued under Paragraph 7 of 
the DPCO 1995 from 1999 onward. This also adds to our conclusion 
that prescribing the norms every year under Paragraph 7 of the DPCO 
1995 was a discretionary exercise. 
136. As mentioned above,
we can quite understand ifthe formula 
given in Paragraph 7 of the DPCO 1995 is not strictly adhered to by the 
Central Government while working out the retail price of a formulation. 
But ifthe drug industry is itself quite content with being given the benefit 
of actuals in material cost rather than having a norm fixed in that regard, 
then there is no obligation on us to completely upset the apple cart and 
quash a few dozen notifications at the behest of only a couple of 
respondents. If we do so, we would be acting to the detriment of the 
entire drug industry (except one - and we must mention that not many 
other manufacturers and formulators are before us), but we would also 
provide no advantage to the consumers who ha_ye already purchased 
the formulations more than a decade ago and have no hope of getting a 
refund on their purchase. Additionally, we would really be serving no 
public or societal interest in q4ashing a few dozen notifications under 
these circumstances. 
' 
' 
137. We may mention en passant that the ceiling price fixed by
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
591 
[MADAN B. LOKUR, J.] 
the BICP on 7"' July, 1994 and thereafter revised by the NPPA in February 
A 
1998 in respect of packing materials has not been questioned (let alone 
challenged) by anybody. 
(iv) Other submissions 
138. It was contended by learned counsel appearing on behalf of 
Dr. Reddy's Laboratories Ltd. that the retail price or the ceiling price of 
a formulation could not have been fixed by the Central Government 
without first fixing the maximum sale price under Paragraph 3 of the 
DPCO 1995 of the bulk drug utilized in the formulation. We are unable 
to accept this submission. In the first place, there is no obligation on the 
Central Government to fix the maximum sale price of every bulk drug, 
whether it is in the First Schedule to the DPCO 1995 or not. In fact, if 
a bulk drug is not in the First Schedule to the DPCO 1995 the Central 
Government is not empowered to fix its maximum sale price. There 
could also be a situation where a formulation consists of two or more 
drugs, one of which is not a scheduled drug. In that event, if the contention 
· oflearned counsel is accepted then it would mean that the retail price or 
the ceiling price of that formulation cannot be fixed. This is surely not 
the intention of the DPCO 1995 nor is it a possible manner of reading 
the DPCO 1995. If the DPCO 1995 were to be read in the suggested 
manner, then every drug would have to be included in the First Schedule 
to
the DPCO 1995 as a pre-condition to fixing the retail price or ceiling 
price of a formulation which contains that drug. This would be doing 
utmost violence to the plain provisions of the DPCO 1995 and for this 
simple reason we are unable to acceptthe submission oflearned counsel. 
The learned counsel has unfortunately overlooked that a formulation 
can contain 011e or more bulk drugs including a bulk drug not included in 
the First Schedule to the DPCO 1995. 
139. It has also l?een argued before us by learned counsel 
representing a small scale industry that the ceiling price of formulations 
fixed under Paragraph 9 of the DPCO 1995 denied the benefit of an 
exemption notification dated 2"d March, 1995 available to small scale 
industries. We are not inclined to take this argumen1 with any degree of 
seriousness particularly since it seems to suggest that the Central 
Government acted with a ma/a fide intent. There is no warrant for 
such an assumption and no such allegation or averment has been made 
in the pleadings. The issuance ofa notification under Paragraph 9 of the 
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DPCO 1995 is a legislative exercise of power and to say that it was 
resorted to for denying the benefit ofan exemption to small scale industries 
can hardly be given any credence. However, if the submission was 
intended to convey the difficulty faced by small scale industries, it can 
hardly be helped. There is nothing in the DPCO 1995 to suggest that a 
small scale industry is kept out of the rigour of the DPCO 1995. It is 
equally bound by any retail price· or ceiling price fixation by the Central 
Government. 
140. It was then contended on behalf of the manufacturers/ 
formulators that the delegate of a power cannot travel beyond its 
authorization. Reliance in this regard was placed on V.K As/wkan v. 
Assistant Excise Commissioner17 and District Collector, Cllittoor v. 
Cllittoor District Groundnut Traders Association. 18 There can be no 
dispute about th is proposition. It was further contended that if the 
delegate exceeds the powers conferred upon it by the principal, then the 
order passed by the delegate is void ab initio and cannot even be ratified. 
In this regard, reliance was placed on Maratllwada University v. 
Seslirao Ba/want Rao Chavan. 19 The issue in the present case is not 
that the delegate (the Central Government) had exceeded its jurisdiction 
- the issue is that the Central Government failed to exercise the power 
vested in it by Paragraph 7 of the DPCO 1995. It is this that is
under 
challenge and not the exercise of power in excess of jurisdiction. The 
decisions cited on behalf of the manufacturers/formulators in this regard 
are therefore not quite relevant. In any event, we have already· dealt 
with the issue of the purported failure of the Central Government to 
i.:omply with the requirement of prescribing the norms under Prtragraph 
7 of the DPCO 1995 and repetition is not necessary. 
141. We may mention that relying upon Associated Provincial 
Picture Houses Ltd. v. Wednesbury Corporation,~
0 Mayor & C 
Westminster Corporation v. London anti North Western Railway? 
Barium Chemicals Ltd. v. Company Law Boart/12 and State of U.P. 
v~ Renusagar Power Co. 2•1 the Constitution Bench observed in Sliri 
~itaram Sugar Company Ltd. that ;'A repository of power acts ultra 
11 (2009) 14 sec 85 
" ( 1989) 2 sec 58 
1• (1989) 3 sec 132 
20 ( 1948) 1 KB 223 : ( 194 7) 1 All ER 498 
21 1905 AC 426.430: 93 LT 143 
22 1966 Supp SCR 311 
"(1988) 4 sec 59
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
. [MADAN B. LOKUR, J.] 
vires either when he acts in excess of his power in the narrow sense or 
when he abuses his power by acting in bad faith or for an inadmissible 
purpose or on irrelevant grounds or without regard to relevant 
considerations or with gross unreasonableness." 1t was then concluded 
in paragraph 52 of the Report: 
"The true position, therefore, is that any act of the repository 
of power, whether legislative or administrative or quasi-
judicial, is open to challenge if it is in conflict with the 
Constitution or the governing Act or the general principles 
of the law of the land or it is so arbitrary or unreasonable 
that no fair minded authority could ever have made it." 
142. To this we may add thatthe action of a repository of power is 
also amenable to judicial review ifit is contrary to or violates the mandatory 
requirement of a subordinate legislation. Therefore, if the Central 
Government does not adhere to the formula given in Paragraph 7 of the 
DPCO 1995 and fixes the retail price or ceiling price of formulations 
without following the formula laid down, the notification issued by the 
Central Government under Paragraph 8 or Paragraph 9 of the DPCO 
1995 (as the case may be) is liable to quashed as being contrary to law. 
However, no instance has been pointed out to us compelling us to use 
our power of judicial review and quash the notifications under 
consideration. 
Alternative remedy 
143.
The learned Solicitor General was quite vehement in his 
submission that if any manufacturer or formulator was aggrieved by the 
fixing of any the retail price or ceiling price of any formulation, there 
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was an alternative remedy available in the DPCO 1995 to ventilate and ~· F 
articulate the grievance. There is no reason why no one actually sought 
any revision or review of any of the price notifications before us. In this 
context it was pointed out that several constituents of the drug industry 
had taken resort to alternative procedures (including Cipla) and therefore 
it is not as ifthe alternative remedy is illusory. 
G 
144. In response, it was contended that there was hardly any 
material before Cipla to meaningfully resort to the alternative remedy 
provided under the DPCO 1995. Additionally, the norms were not 
prescribed on an annual basis and in the absence of the norms it was not 
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possible for anyone to make an effective case for revision or review of 
any retail price or ceiling price notification. Reference was made to 
Form III in the Second Schedule to the DPCO 1995. 
I 45. Form Ill is a Form of application for approval or revision of 
the price of scheduled formulations. This requires, in paragraph I 3 
thereof, information relating to the break-up of the retail price of a 
formulation. Our attention was drawn to sub-paragraph (b) [Conversion 
Cost (as per·norms)] and sub-paragraph (c) [Packing Material Costs 
(Per SI. No. 15 or as per norms)]. The submission was that an effective 
application could not be made without the norms being prescribed. As 
mentioned above, the norm for conversion cost was prescribed first by 
the notification dated I 7•h February, 1989 and then by the notification 
dated J Jlh July, 1999 (and subsequent notifications). It is difficult to accept 
the submissioQ that despite these notifications a manufacturer or 
formulator was unaware of the norms for conversion cost. As far as the 
norm for packing material cost is concerned, sub-paragraph (c) provides 
an option to the applicant-either the information mentioned in paragraph 
15 may be provided or the norms may be provided. Paragraph 15 requires 
the applicant to provide information pertaining to the pack, batch size 
(tablets I gms etc.), name of the packing material, rate per unit, quantity 
.
required per batch and value of packing material/batch nos./kgs etc. (in 
rupees). Therefore, even ifthe norm for cost of packing material is not 
prescribed, the applicant can provide the requisite information (based on 
actuals) for the purposes of making an effective application for revision 
of the price of a scheduled formulation. Incidentally, the Form also 
confirms that no manufacturer or formulator is placed at any disadvantage 
ifthe norm for packing material cost is not prescribed under Paragraph 
7 of the DPCO 1995 but actuals are allowed. 
146. The efficacy of the alternative remedy provided in the DPCO 
was the subject matter of consideration in Cynamide India Ltd. The 
contention urged therein was that for the purposes of price fixing, facts 
and figures were arbitrarily assumed by the Central Government. Rejecting 
this, it was held by this Court in paragraph 11 of the Report as follows: 
-" ......... We do not propose to delve into the question 
whether there has been any such arbitrary assumption of 
facts and figures. We think that ifthere 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
UNION OF INDIA & ORS. v. MIS. CJPLA LTD. & ANR. 
[MADAN B. LOKUR, J.] 
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 hearing of the review 
applications is sufficient compliance with the demands 
of fair play in the case of the class of persons claiming to 
be affected by the. fixation of maximum price under the· 
Drugs (Prices Co~trol) Order." [Emphasis supplied by us]." 
We have no doubt that if any manufacturer or formulator had 
taken the trouble of preferring a revision or review application, all 
necessary material would have been inade available to the complainant 
for an effective representation. We are satisfied that none of the parties 
before us was precluded by circumstances from preferring a revision or 
review for corrective measures in relation to the retail price or ceiling 
price of any particular formulation - in fact, we are told by the learned 
Solicitor General that some of them did. 
147.
Strictly speaking, in view of the availability of an alternative 
and efficacious remedy available under the DPCO 1995 read with the 
decision of this Court in Cynllmitle Indill Ltd. the writ petitions filed by 
the manufacturers and formulators before us ought not to have been 
entertained by the concerned High Courts, but.we leave it at that. 
Forum shopping 
148. The learned Solicitor General submitted that Cipla was guilty 
of forum shopping inasmuch as it had filed petitions in the Bombay High, 
Court, the Karnataka High Court ancl also an affidavit in the Delhi High 
Court as a member of the Bulk Drug Manufacturers Association and 
had eventually approached the Allahabad High Court for relief resulting 
in the impugned judgment and order dated 3rd March, 2004. It was 
submitted that since Cipla had approached several constitutional Courts 
· for relief, the proceedings initiated in the Allahabad High Court clearly 
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amount to 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. 
150. A classic example of forum shopping is when a litigant 
approaches one Court for relief but does not get the desired relief and 
then approaches another Court for the same relief. This occurred in 
Rajiv Bhatia v. Govt. of NCT of Delhi and others.24 The respondent-
mother of a young chi Id had filed a petition for a writ of habeas corpus 
in the Rajasthan High Court and apparently did not get the required 
relief from that Court. She then filed a petition in the Delhi High Court 
also for a writ of habeas corpus and obtained the necessary relief. 
Notwithstanding this, this Court did not interfere with the order passed 
by the Delhi High Court for the reason that this Court ascertained the 
views of the child and found that she did not want to even talk to her 
adoptive parents and therefore the custody of the child granted by the 
Delhi High Court to the respondent-mother was not interfered with. 
The decision of this Court is on its own facts, even though it is a classic 
case of forum shopping. 
151. In Aratlti Randi v. Bcmdi Jagadmksltaka Rao2-' this Court 
noted that jurisdiction in a Court is not attracted by the operation or 
creation of fortuitous circumstances. In that case,
circumstances w~re 
created by one of the parties to the dispute to confer jurisdiction on a 
particular High Court. This was frowned upon by this Court by observing 
that to allow the assumption of jurisdiction in created circumstances 
would only result in encouraging forum shopping. 
152. Another case of creating circumstances for the purposes of 
forum shopping was World Tanker Carrier Corporatioq v. SNP 
Shipping Services Pvt. Ltd. and ot/lefs26 wherein it was observed that 
the respondent/plaintiff had made a deliberate attempt to bring the cause 
of action namely a collision between two vessels on the high seas within 
the jurisdiction of the Bombay High Court. Bringing one of the vessels 
to Bombay in order to confer jurisdiction on the Bombay High Court had 
the character of forum shopping rather than anything else. 
" < 1999) s sec 525 
~· (2013) 15 sec 790 
"< 1998) 5 sec 310
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
[MADAN B. LOKUR, J.] 
153. Another form of forum shopping is taking advantage of a 
view held by a particular High Court in contrast to a different view held 
by another High Court. In Amhica Industries v. Commissioner of 
Central Excise27 the assessee was from Lucknow. It challenged an 
order passed by the Customs, Excise and Service Tax Appellate Tribunal 
(the CESTAT) located in Delhi before the Delhi High Court. The CESTAT 
had juri~diction over the States of Uttar Pradesh, NCT of Delhi and 
Maharashua. The Delhi High Court did not entertain the proceedings 
initiated by the assessee for want of territorial jurisdiction. Dismissing 
the assessee's appeal this Court gave the example of an assessee 
affected by an assessment order in Bombay invoking the jurisdiction of 
the Delhi High Court to take advantage of the law laid down by the 
Delhi High Court or an assessee affected by an order of assessment 
made at Bombay invoking the jurisdiction of the Allahabad High Court 
to take advantage of the law laid down by it and consequently evade the 
law laid down by the Bombay High Court. It was said that this could not 
be allowed and circumstances such as this would lead to some sort of 
judicial anarchy. 
154. Yet another form of forum shopping was noticed in Jagmolum 
Bait/ and a11otlter v. State (NCT of Del/ti) anti m10tlter2H wherein it . 
was held that successive bail applications filed by a litigant ought to be 
heard by
the same learned judge, otherwise an unscrupulous litigant would 
go on filing bail applications before different judges until a favourable 
order is obtained. Unless this practice was nipped in the bud, it would 
encourage unscrupulous litigants and encourage them to entertain the 
idea that they can indulge in forum shopping, which has no sanction in 
law and certainly no sanctity. 
155. Another category of forum shopping is approaching different 
Courts for the same relief by making a minor change in the prayer clause 
of the petition. In Utlyami Evam Klwtli Gramotlyog Weifare Stmstlw 
and anotlter v. State of Uttar Pratleslt anti otlters29 it was noticed by 
this Court that four writ applications were filed by a litigant and although 
the prayers were apparently different, the core issue in each petition 
centred round the recovery of the amount advanced by the bank. 
Similarly, substituting some petitioners for others with a view to confer 
jurisdiction on a particular Court would also amount to forum shopping 
"(2007) 6 sec 769 
"(2014) 16 sec 501 
" (2008) 1 sec 560 
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by that group of petitioners. 
156. Finally and more recently, in Supreme Court Advocates on 
Record Association v. Union of India (Recusal Matter)3° Justice 
Khehar noticed yet another form of forum shopping where a litigant 
makes allegations of a perceived conflict of interest against a judge 
requiring the judge to recuse from the proceedings so that the matter 
could be transferred to another judge. 
157. The decisions referred to clearly lay down the principle that 
the Court is required to adopt a functional test vis-a-vis the litigation and 
the litigant. What has to be seen is whether there any functional similarity 
in the proceedings between one Court and another or whether there is 
some sort of subterfuge on the part of a litigant. It is this functional test 
that will determine whether a litigant is indulging in forum shopping or 
not. 
158. Keeping all these examples in mind with several other nuances 
and also keeping the functional test in mind, we have examined the relief 
claimed by Cipla in the different High Courts and find that they have no 
substantive connection whatsoever with the relief claimed in the 
Allahabad High Court. 
159. Be that as it may, we have examined the submissions made 
by the learned Solicitor General in respect of each of the writ petitions 
filed by Cipla. 
160. The Bulk Drug Manufacturers Association had filed W.P. 
No. 5578of1997 in the Delhi High Court in
which it had challenged the 
inclusion of8 bulk drugs in the First Schedule of the DPCO 1995. Among 
the bulk drugs whose inclusion was challenged were Salbutamol, 
Theophylline, Ciprofloxacin and Norfloxacin. 
161. The Delhi High Court required the members of the Bulk Drug 
Manufacturers Association to file an affidavit stating that they would be 
bound by the orders passed by the Delhi High Court. Pursuant to this 
direction, Cipla filed an affidavitin the Delhi High Court on 241h May, 
1999 stating that any final decision taken on the question of the inclusion 
or exclusion ofSalbutamol and Theophylline in W.P. No.5578of1997 
will be binding on Cipla subject to any appeal preferred thereon. It was 
also disclosed by Cipla that it had already filed a writ petition in the 
'" (2016) s sec 808
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 
[MADAN B. LOKUR, J.] 
Bombay High Court on 91h April, I 999 to the effect that Salbutamol be 
exempted from price control under the DPCO 1995. 
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 
Theophyiline in the First Schedule ofDPCO 1995. 
163. Cipla also filed Writ Petition No.1974 of2000 in the Bombay 
High Court on 22"d September, 2000 seeking exclusion of the bulk drug 
Ciprofloxacin from the ambit of price control under the DPCO 1995. It 
was contended that it should be excluded from the First Schedule of the 
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. 
165. Cipla also filed writ petitions in the Karnataka High Court 
being W.P. Nos.33989-34011 of2000. ln these writ petitions, several 
notifications issued under Paragraph 8 and Paragraph 9 of the DPCO 
1995 as well as demand notices issued to Cipla were under challenge. 
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 theAllahabad 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. 
167. The proceedings in the Allahabad High Court were initiated 
as a result of a show cause notice issued to Cipla. No similar show 
cause notice and no similar factual circumstances existed. in any of the 
other High Courts in which Cipla had initiated proceedings. It cannot, 
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Two comments 
168. Before parting with these appeals, we would like to make 
two comments: Firstly, with regard to the manner in which the Union of 
India has handled the litigation. We find that by and large, very little or 
scanty material was placed by the Union oflndia before the concerned 
High Courts, particularly the Allahabad High Court. On the other hand, 
several volumes of documents have been filed in this Court, though after 
permission. Such a practice deserves discouragement and we do so. 
There are several reasons for this. It tends to degrade the importance of 
proceedings in the High Court and could subsequently embarrass the 
High Court which might inadvertently base its decision on insufficient 
material resulting in the possibility of an incorrect decision which is liable 
to be set aside. It might also cause serious prejudice to a litigant because 
it is for the firsttime in this Court that the entire material is made available 
to a litigant placing him/her at a disadvantage in dealing with issues of 
importance. It certainly places an unnecessary and totally avoidable 
burden on this Court which is required to deal with the material as a 
court of first instance. Under such circumstances this Court does not 
have the benefit of the opinion of the High Court while dealing with an 
appeal. All in
all therefore, for the better adjudication of disputes and for 
the convenience of all concerned, it would be more appropriate for the 
Union oflndia, as indeed for all litigants to place on record all the material 
before the court of first instance, whether it is a district court or a High 
Court. We need say no more on this subject. 
169. Secondly, the learned Solicitor General specifically and 
repeatedly requested us to comment on the grant of interim orders by 
the High Courts in matters concerning economic issues and particularly 
in matters pertaining to the sale of formulations at the retail price or 
ceiling price fixed by the Central Government through notifications issued 
under the DPCO. Certain interim orders were brought to our notice 
restraining coercive action against a manufacturer/formulator when a 
price notification was under challenge. It is true that such an interim 
order could have a huge impact on society. 
170. Jn Cy11amide /11dia this Court expressed the view that an 
interim order should not have the effect of staying the implementation of
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 
[MADAN B. LOKUR, J.] 
a notification fixing the price of a formulation under the DPCO. That 
would be against public interest and, therefore, ought not to be made by 
a Court unless it is satisfied that no public interest is going to be served. 
This is what this Court had to say in paragraphs 3 7 and 3 8 of the Report: 
"We notice that in all these matters, the High Court granted 
stay ~,f implementation of the notifications fixing the 
maximum prices of bulk drugs and the retail prices of 
formulations. We think that in matters of this nature, where 
prices of essential commodities are fixed in order to maintain 
or increase supply of the commodities or for securing the 
equitabie 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. 
In matters of fixation of price, it is the interest of the 
consumer public that must come first and any interim order 
must take care of that interest." 
171. Under these circumstances, we are clearly of the view that 
in matters where public interest is involved, the Court ought to be 
circumspect in granting any interim relief. The consequence ofan interim 
order might be quite
serious to society and consumers and might cause 
damage to public interest and have a long term impact. We make it clear 
that it is not our intention to suggest to any Court how and in what 
circumstances interim orders should or should not be passed but it is 
certainly our intention to make it known to the Courts that the time has 
come when it is necessary to be somewhat more circumspect while 
granting an interim order in matters having financial or economic 
implications. 
I 72. We would also like to draw the attention to the Drug Policy, 
I 994 which mentions that as far as the drug industry is concerned, there 
are about 250 large units and about 8000 small scale units in operation. 
These units produce about 350 bulk drugs, and as we have mentioned 
above more than 2000 formulations. The Drug Policy, I 994 also mentions 
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SUPREME COURT REPORTS 
[2016] 7 S.C.R. 
that the production of bulk drugs in 1993-94 is in the region ofRs.1320 
crores and for the same period the production of formulations is in the 
region of Rs. 6900 crores. In other words, not only is the drug industry in 
the country extremely large with heavy financial stakes but there is lot 
at stake in it not only for the industry but also for the consumers. For 
this reason, the Courts have to extremely cautious in interfering in any 
manner whatsoever with the working of the drug industry. Any 
interference by the Courts would have wide ranging repercussions not 
only in commercial terms but also for the people of the country. 
Conclusion 
c 
173. Our answer to the questions identified are as follows: 
a. Whether the notification dated 13'h July, 1999 issued by the 
Central Government under Paragraph 7 of the Drugs (Prices Control) 
Order, 1995 prescribing the norms for conversion cost, packing charges 
and process loss of raw materials (other than packing materials in 
D 
conversion) and packing and process loss of packing materials in 
packaging was issued mechanically and without any application of mind 
or is it valid in law? Our answer to this is that the notification is valid and 
that the notification was not issued mechanically or without any application 
of mind. 
E 
b. Whether the notifications dated J2•h July, 2000, J2•h July, 200 l, 
12•h July, 2002 and J ]'h July, 2003 issued by the Central Government
under Paragraph 7 of the Drugs (Prices Control) Order, 1995 re-notifying 
the norms prescribed on 13th July, 1999 were issued mechanically, without 
any application of mind and without re-determining the norms every 
year as required by the Drugs (Prices Control) Order, 1995 and are they 
F 
valid in law? Our answer is that the notifications are valid and were not 
issued mechanically or without any application of mind and that it was 
not necessary to re-determine the norms every year. 
c. Whether various notifications issued by the Central Government 
fixing the retail price or ceiling price of formulations under Paragraphs 8 
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and 9 (as the case may be) of the Drugs (Prices Control) Order, 1995 
without determining the norm for cost of packing material as required by 
Paragraph 7 of the Drugs (Prices Control) Order, 1995 are valid in law? 
Our answer is in the affirmative. 
d. Whether fixing the retail price of a formulation under Paragraph 
H
UNION OF INDTA & ORS. v. M/S. CIPLA LTD. & ANR. 
603 
[MADAN B. LOKUR, J.] 
8 of the Drugs (Prices Control) Order, 1995 without first fixing the sale 
A 
price of a bulk drug under Paragraph 3 of the Drugs (Prices Control) 
Order, 1995 utilized in the manufacture of a formulation is valid in law? 
Our answer is in the affirmative. 
174. In view of the above, the appeals filed by the Union oflndia 
are allowed. The impugned judgments and orders are set aside. The 
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appeals filed by Dr. Reddy's Laboratories Ltd. are dismissed. No costs. 
Nidhi Jain 
Appeals disposed of. 
c