Case: Union Of India Vs. Glaxo India Ltd.

The Respondent-Company is engaged in manufacture and sale of three bulk drugs, namely, Betamethasone Alcohol (B.A.), Betamethasone 17 valerate (B.V.) and Betamethasone di Sodium Phosphate (B.P.), and various formulations based on these bulk drugs. They were sold at the price that was declared by the Respondent-Company under the Drugs (Price Control) Order, 1970 [in short, "DPCO 1970"]. The Central Government promulgated the Drug (Price Control) Order, 1979, [in short, "DPCO 1979"], replacing DPCO 1970 which included the above mentioned bulk drugs in Schedule II to the order. The Central Government is vested with the power under Para 3(i) of DPCO 1979 to fix the maximum sale price of indigenously manufactured bulk drugs in First or Second Schedule by issuing a notification in the official gazette. Sub-Para 3(2) provides that while fixing the price of a bulk drug, the Government may take into account the average cost of production of such bulk drug manufactured by an efficient manufacturer and allow a reasonable return on net worth. Sub-Para 3(3) prohibits any person from selling a bulk drug at a price exceeding the price fixed under sub-para(1) and other local taxes, if any, payable.3) In exercise of the powers so conferred, the Central Government had fixed the maximum price of the above mentioned bulk drugs vide its order dated 12.05.1981.4) The Respondent-Company had called in question the legality and validity of the price fixation order dated 12.05.1981 before the High Court of Delhi in C.W.P No. 1551 of 1981, mainly on the ground that the price fixation order did not take into account the cost of production of bulk drugs as was required to be done. On 27.08.1981, the High Court passed an interim order staying the implementation of the bulk drug prices fixed as per order dated 12.05.1981 as well as the prices of the formulations from the said bulk drug, in view of the undertaking of the respondent company to maintain the prices of both bulk drugs and its formulations prior to the notification dated 12.05.1981. During the pendency of the proceedings, the High Court, by order dated 13.05.1982, directed the parties to explore the possibilities of a settlement, when it was brought to the notice of the High Court that the Respondent-Company has filed a review petition for review of the price fixation order dated 12.05.1981 passed by the Central Government in exercise of its power under Para 3(1) of DPCO 1979.5) Pursuant to the said direction, the Respondent- Company made available the actual cost of production of bulk drugs to the Central Government and also requested for an oral hearing. After considering the material available on the record and also the oral submissions made, the Central Government re-fixed the price of the three bulk drugs mentioned above by an Order dated 20.11.1986 with retrospective effect from 12.05.1981. Aggrieved by the same, the Respondent-Company amended the relief claimed in the pending proceedings before the High Court.6) The Division Bench of the High Court, by its judgment and order dated 31.08.1987, disposed of the writ petition. While doing so, the Court did not quash the impugned price fixation order dated 20.11.1986 (made after the first review) passed by the Central Government, but directed the Respondent-Company to file another review petition before the Central Government for reconsideration of the price fixed by impugned price fixation order and the Central Government to condone the delay and consider the review petition on merits.7) In the light of the said directions issued by the Delhi High Court in CWP No.1551 of 1981, the Central Government constituted the "Murthy Committee" consisting of experts in the field. The Committee conducted the review in accordance with directions issued by the High Court and submitted its report dated 12.10.1988 to the Central Government. The Government, vide its order dated 02.01.1989, issued price fixation order under DPCO 1989 fixing the price for three Bulk Drugs higher than the earlier price fixed vide order dated 20.11.1986. For convenience, we give below the price declared by the respondent company under DPCO 1970 and the price fixed by the Government on 12.05.1981, on 20.11.1986 after first review and on 02.01.1989 after the second review.Price Fixed by the Central Govt.S. No.Name Declared price with DPCO 1970Vide Notification dt. 12.05.81Vide Notification dt. 20.11.86 (first review)Vide Notification dt. 02.01.1989 (second review)(`) (`) (`) (`)1. Betamethasone Alcohol 134.28 113.34 127.70 144.192. Betamethasone 17-Valerate 220.00 105.85 122.00 136.583. Betamethasone D-Sodium Phosphate 225.00 126.23 135.00 144.58Pursuant to the order so passed, the Union of India had issued tentative demand of `66.35 Crores, which was finally revised to `71.21 Crores (towards the difference between the formulation prices fixed in the price fixation orders and the actual prices charged by the respondent company for the period 12.05.1981 to 25.08.1987) to be deposited by the respondent-company in the DPEA, by their letters dated 18.06.1990 and 16.11.1990.8) Aggrieved by the demand so made by the Central Government vide its letters dated 18.06.1990 and 16.11.1990, the Respondent-Company filed C.W.P. No. 2170 of 1990 before the High Court of Delhi, inter alia, questioning the legality and validity of the demands raised by the Central Government and for its deposit into DPEA. The main issues raised therein were that the demand was contrary to the directions issued by the High Court in CWP No.1551 of 1981. Secondly, the demands were in violation of para 7(2)(a) of the DPCO 1979 and further, the demands were not based on the difference in prices of "common selling prices" and "retention prices" of bulk drugs, but were based on the difference between the "common selling prices" and the "price of formulations". The writ petition was contested by the Union of India, and it was contended that the prices were fixed after taking into consideration all the relevant data and the same was done in accordance with the judgment and order of the Division Bench of the High Court in C.W.P. No. 1551 of 1981.9) The High Court, by its order dated 19.10.2001, allowed the writ petition and quashed the demands made by the Central Government as illegal, arbitrary and contrary to the directions issued by the Division Bench of the High Court in C.W.P. No. 1551 of 1981. It was held that the price fixation order dated 02.01.1989 was retrospective in its operation and related back to the order dated 12.05.1981. It was also held that the demand raised by the Central Government was in violation of Para 7(2)(a) of the DPCO 1979, inasmuch as it is not based on the "common selling prices" and "retention prices of bulk drugs", but is based on the difference between the "common selling prices" and the "price of formulations". The Court further observed that even though the DPCO 1979 contained statutory provisions for fixation of formulation prices, even if it is violated, the respondent company would still be entitled to retain the excess amount over the statutory maximum price and the only option available to the Central Govt. was to initiate criminal proceedings. The High Court directed the appellants to raise demands on the basis of the revised prices of the bulk drugs as notified on 02.01.1989 and for the purpose of Para 7(2) (a) of DPCO 1979, determine the excess amount not on the basis of the prices of the formulations but on the basis of the prices of bulk drugs used by the respondent company in its formulations. The correctness of the said judgment and order is called in question by the Union of India in this appeal.

Court's reasoning:
32). In our view, a reading of the observations made by the Court, would indicate that it had reserved liberty to the Central Government either to affirm or review the prices of the bulk drugs fixed by order dated 20.11.1986 and to make consequent changes in the prices for drug formulations. The Central Govt., taking clue from the directions issued by the Court, which order has become final, has passed the impugned Notification dated 02.01.1989, by refixing the prices of drug formulations by applying the provisions contained in DPCO 1989. In view of the above, it is difficult for us to find fault with the exercise done by Central Government while notifying the impugned notification. In our considered view, the notification so issued is in accordance with the observations made by this Court in Cyanamide case (supra) wherein it is stated :-"...............since the maximum price of a bulk drug is required by paragraph 3 to be notified any fresh decision taken in the proceeding for review by way of modification of the maximum price has to be made by a fresh notification fixing the new maximum price of the bulk drug. In other words, the review if it is fruitful it must result in fresh subordinate legislative activity."These observations of this Court in Cyanamide case, in our view, supports the stand of the Revenue, that once a review petition filed by the manufacturer of a bulk drug is considered and a fresh notification is issued, the same would be prospective and it does not relate back to the notification fixing the prices of bulk drugs issued earlier.33). It is no doubt true that the Murthy Committee was constituted pursuant to the direction issued by the High Court to look into the data that may be furnished by the Respondent-Company and give its report for the purpose of fixing the prices of the bulk drugs manufactured by the Respondent-Company. It is also not in dispute that the prices fixed by the Murthy Committee was much higher than those notified by the Central Government, while issuing the notification dated 20.11.1986. In our view, that itself will not make any difference for the reason, the Central Government, after taking into consideration the report and the recommendations made by the Murthy Committee, has issued a notification which we have already said is only prospective and not retrospective as contended by learned counsel for the Respondent-Company. Hence, we are of the view that there was no implied rejection of the recommendations of the Murthy Committee.34) Therefore, firstly, it cannot be said that the Central Government while considering the review petition filed by the Respondent-Company had disregarded the direction issued by the Delhi High Court in its first judgment. Secondly, the contention of the respondent-company that the price fixation order of 02.01.1989 was the result of decision taken by the Central Govt. on the review petition filed by the respondent-company and therefore, the demands raised as per the price fixation order dated 20.11.1986 had to be revised according to the price fixation order dated 02.01.1989, cannot be accepted. We also add, since the notification dated 02.01.1989 fixing prices of bulk drugs is prospective, the earlier notification would operate during the intervening period. To sum up, our findings in regard to the first and third issues are as under :-i) The demand to be raised on the respondent-company for the period 12.05.1981 to 25.08.1987 is to be based on the prices fixed under the notification dated 20.11.1986 and not on the drug prices fixed on 02.01.1989.ii) The supersession of a notification does not obliterate the liability incurred under the earlier notification.35) Now to answer the second issue, viz. whether the demand raised under para 7(2)(a) of DPCO 1979, should be computed on the basis of difference in bulk drug prices or on the basis of difference in formulation prices, it is necessary to extract para 7 of DPCO 1979 and the other relevant paras in DPCO 1979. Para 7 reads:"7. Power to fix retention price and pooled price for the sale of bulk drugs specified in First Schedule or Second Schedule indigenously manufactured as well as imported - (1) Where a bulk drug specified in the First Schedule or the Second Schedule is manufactured indigenously and is also imported, the Government may, having regard to the sale prices prevailing from time to time in respect of indigenously manufactured bulk drugs and those of imported bulk drugs, by order, fix, with such adjustments as the Government may consider necessary -(a) retention prices for individual manufacturers, importers, or distributors of such bulk drugs;(b) a pooled price for the sale of such bulk drugs (2) Where a manufacturer of formulations utilises in the formulations any bulk drug, either from his own production or procured by him from any other source, the price of such bulk drug being lower than the price allowed to him in the price of his formulations the Government may require such manufacturer -(a) to deposit into the Drug Prices Equalisation Account referred to in paragraph 17 the excess amount to be determined by the Government; or(b) to sell the formulations at such prices as may be fixed by the Government".36) Para 8 speaks of prices of bulk drugs produced through indigenous research and development, Para 9 authorises the Central Government to direct manufacturer of bulk drugs to sell bulk drugs to manufacturers of formulations, Para 10 provides for the calculation of retail prices of the formulations, Para 12 authorises the Central Government to fix retail prices of formulations specified in Category III of Third Schedule, Para 14 provides for general provisions regarding prices of formulations, Para 15 speaks of power of the Central Government to revise prices of formulations, Para 17 speaks of Drug Prices Equalisation Account (DPEA). The other paras may not be relevant to be noticed for the purposes of this case.37) Para 7 of the DPCO, 1979 is in two parts. Sub-para (1) of Para-7 authorises the Central Government to fix retention price and pooled price for the sale of Bulk drugs specified in First Schedule or Second Schedule indigenously manufactured and those of imported bulk drugs. Sub-Para (2) of Para 7 speaks of a situation where a manufacturer of formulations sells the formulations of any bulk drug, either manufactured by him or procured by him from other sources, being lower than the price allowed to him in the price of his formulations, the Government may require such manufacturer of formulations to deposit into DPEA the excess amount as determined by the Central Government. Sub Para 7(2)(b) mandates the manufacturer of the formulations to sell such formulations as fixed by the Central Government. Para 7 of DPCO 1979 provides two different situations, one based on the difference in the common selling prices of bulk drugs and the second the difference based on common selling prices of the formulations.Para 17 of DPCO 1979, as we have already stated, authorizes the Central Government to maintain DPEA comprised of the grants made by the Government, deposits to be made by the manufacturers, importers and distributors of the drugs.38) The Respondent-Company in the month of June, 1990 and November, 1990 received a demand on the allegations that the Respondent-Company had over charged for the bulk drugs as well as formulations being manufactured by it. These demands are based on the prices fixed by order dated 20.11.1986. The Respondent-Company had questioned this demand before the High Court primarily on the ground that the sale prices of the formulations cannot not be taken into consideration and only the cost of bulk drugs consumed in those formulations could be taken into consideration for making calculations. The prayer in the writ petition was to direct the Central Government to reassess and calculate the demand on the basis of the revised bulk drug prices fixed on 02.01.1989, instead of taking into consideration the prices of the formulations and to consider the excess amount on the basis of prices of bulk drugs used in the formulations. The stand of the Central Government in the affidavit filed before the High Court was that the prices of the bulk drugs had been fixed vide their order dated 12.05.1981 and 20.11.1986, but the prices of the formulation could not be fixed because of the stay granted by the Court and as such the Respondent-Company was bound to charge only prices as were liable to be fixed under the DPCO 1979. They had also stated that the Respondent-Company was entitled to charge such prices for its bulk drug as was fixed by the price fixation order dated 20.11.1986 or liable to be fixed for formulations under DPCO of 1979 and was bound to deposit the over charged amounts to DPEA.39) The learned senior counsel Shri. Andhyarujina submits that Para 7(2)(a) read with Para 17 of DPCO 1979 makes it clear that the Scheme of the DPCO 1979 was to encourage domestic production of bulk drugs through a system of retention and pooled pricing. It is also submitted that para 17(2) and (3) sets out the manner in which the DPEA was to be utilized and how a manufacturer of bulk drugs could make a claim in respect of bulk drugs manufactured by it from DPEA. Therefore, para 7(2)(a)was never intended to cover prices of formulation but only the differences in the price of bulk drugs used in formulations which the manufacturer can be asked to deposit into the DPEA under para 7(2)(a). However, it is argued by learned counsel for the Central Government that the expression "excess amount to be determined by the Government" in para 7(2)(a) of DPCO 1979 gives a wide discretion to the Government in the matter of determining the amount recoverable under the para and, therefore, the Government was justified in raising the demand taking into consideration the difference between the common selling prices and the price of the formulations.40) It is a cardinal principle of interpretation that a statute must be read as a whole. Lord Herschell in the case of Colguhoun v. Brooks, (1889) 14 AC 493, aptly pointed out:"It is beyond dispute, too, that we are entitled, and indeed bound, when construing the terms of any provision found in a statute, to consider any other parts of the Act which throw light on the intention of the legislature, and which may serve to show that the particular provision ought not to be construed as it would be alone and apart from the rest of the Act."41). This Court in the case of Phillips India Ltd. v. Labour Court, (1985) 3 SCC 103 has observed :"15. No canon of statutory construction is more firmly established that the statue must be read as a whole. This is a general rule of construction applicable to all statutes alike which is spoken of as construction ex visceribus actus......The only recognized exception to the well-laid principle is that it cannot be called in aid to alter the meaning of what is of itself clear and explicit. Lord Coke laid down that: "it is the most natural and genuine exposition of a statute, to construe one part of a statute by another part of the same statute, for that best expresseth meaning of the makers" (Quoted with approval in Punjab Beverages Pvt. Ltd. v. Suresh Chand, [(1978) 2 SCC 144]) "42). To our mind, the grievance of the respondent- company which was projected before the High Court and also before us is that the impugned demands were in violation of Para 7(2)(a) of DPCO 1979, mainly for the reason that they were not computed on the basis of difference in the prices of bulk drugs but on the difference between the prices of bulk drugs and the prices of formulations in which the company had used those bulk drugs. The appellants/Central Government while justifying the impugned demand had contended before the High Court and even before us, that the prices of bulk drugs were fixed vide orders dated 12.05.1981, which were revised by order dated 20.11.1986, but the formulations could not be fixed because of the interim order granted by the High Court and, ergo, the respondent-company is liable to deposit into DPEA the over charged amount in respect of their formulations also.43) To resolve the controversy on this issue, it is necessary to notice the impugned demands raised by the appellants/Central Government dated 16th November, 1990. The relevant portion is extracted by omitting what is not necessary for the purpose of considering the issue before us. They are as under:- "Subject: Recovery into the Drug prices Equalisation Account in respect of Betamethasone and its formulations.Dear Sirs,I am directed to refer to your letter dated the 17th September, 1990 on the above subject and to say that the liability of your company upto 25th August, 1987 has since been determined based on the available data. The details are as under:-(i) Bulk drugs sold to others(a) Attached statement at Annexure-I gives the details of your liability of Rs.23.62 lakhs in respect of the bulk drug.(ii) Formulations and bulk drug captively used.(b) The liability in respect of 16th packs of formulations has been determined at Rs.7121.03lakhs as per details annexed.(c) Liability in respect of 8 packs of formulations have been worked out at Rs.33.53 lakhs subject to your company making available the details of the packs produced and sold during 12th May, 1981 and 30th June, 1981. The liability in respect of these 8 packs would be finalized after these details are received.2. While determining the liability the prices charged by your company based on the stay granted by the Honble Delhi High Court and the prices to which your company would have been entitled had the stay not been granted have been taken into consideration. The prices to which your company was entitled to are shown in column 5 of the statement and these prices have been worked out by the Expert Body, namely, Bureau (sic.) of Industrial Costs and prices based on the price of the bulk drug as upheld by the High Court and other parameters like conversion cost, packing charges, packing materials excipients (sic.) etc. As prevalent in May, 1981, the norms of conversion cost and packing charges for formulations have also been upheld by the Honble Supreme Court.3. Liability in respect of two packs of formulations indicated at S.No.17 and 18 (sic.) would be communicated to you after the details of the price prevailing on 12th May, 1981 and the basis thereof are communicated to the Government.4. The liability in respect of 6 packs of formulations would be finalized after the details of packs produced/sold during 12th May, 1981 to 30th June, 1981 are made available. It is brought to your notice once again that as already advised in this Ministrys letter of even number dated the 20th September, 1990 and as directed by the Honble High Court vide its orders dated the 9th August, 1990 your company is still to make available the details in respect of bulk drug Betamathasone and its formulations after 25th August, 1987. Please expedite these details also so that your liability can be finalized for this period as well.Yours faithfully,Sd./-(J.L. Sharma)UNDER SECRETARY TOTHE GOVERNMENT OF INDIA"44). Now let us see how the High Court has decided this issue. The Court after noticing elaborately the intent, object and the possible construction that could be placed on paras 3 to 9 and para 17 has observed that:"Neither paras 3 to 9 nor para 17 of DPCO 1979 suggest that the amount to be deposited in DPEA had anything to do with the prices of the formulations which were being fixed in terms of paras 10 and 11 of the said order. Para 7(2) of the order, which speaks of utilization of bulk drugs in the formulations, makes it abundantly clear that the amount to be deposited into DPEA in this regard related only to the common selling price of bulk drug which was lower than the price allowed to him in the price of his formulations. As a natural consequence, therefore, the demand for the amount to be deposited in DPEA account could be based and calculated only on the basis of the prices of the bulk drugs consumed in the formulations and not on the basis of notional prices of formulations. The prices of the formulations, therefore, were not at all relevant for the purpose. Thus the impugned demands, which were based on the formulations prices suffer from the vice of considering the formulations prices and not the quantity and the price of the bulk drugs consumed therein." (Emphasis supplied)45). In our view, the fallacy in the impugned judgment appears to be in not properly analyzing the clear meaning of the expressions used in para 7(2)(b) of DPCO 1979.46) A plain reading of Para 7(2)(a) of the DPCO 1979 shows what can be directed by the Central Government to be deposited into DPEA by the manufacturer of bulk drugs and any formulations using those drugs or procured from outside, as in the present case. Firstly, Para 7(2)(a) applies to a manufacturer of formulations. The manufacturer must utilize in the formulation(s) any bulk drug. The bulk drug could be either from his own production or procured from any other sources. If the price of such bulk drugs is notified as lower than the price allowed to him in the price of his formulations, the Central Government may require the manufacturer of formulation the excess amount determined to be deposited into DPEA. Under Para 7(2)(b), the Central Government may direct the manufacturer of formulations to sell the formulations at such prices as may be fixed by the Government.47) The Central Government, while issuing the letters/demand dated 18.06.1990 and 16.11.1990, has specifically bifurcated the differential amount that requires to be paid by the respondent-company on the bulk drugs and their formulations. In the letter, it is made clear that in view of the notification dated 20.11.1986, the respondent-company has to deposit into DPEA the difference between the retention price and pooled price for the sale of bulk drugs. Similarly, since the respondent-company manufactures drug formulations by captive consumption of the bulk drugs, the Central Government initially could not fix the retention price of the formulations in view of the interim orders passed by the High Court while admitting the writ petition filed by the respondent-company. After disposal of the writ petitions filed and in view of the specific liberty that was granted by the High Court in the petitions filed by the respondent-company, the Central Government directed the company to pay not only the difference amount payable for the price of bulk drugs but also those drugs which are utilized in their formulations over and above the prices fixed by the Central Government. In our view, since the para 7(2)(a) of DPCO 1979 does not admit a construction which the respondent-company suggests, it is difficult to hold that under para 7(2)(a) of DPCO 1979, the Central Government could issue demand on the basis of bulk drugs only and not on the basis of difference between the prices of bulk drugs and the prices of the formulations in which the company had used those bulk drugs.48). Before we conclude, it is important to mention that the respondent company (and similar companies) not only manufacture bulk drugs but also use them for their drug formulations for its supply in retail vending and thereby, the ordinary consumer is burdened with a higher price than what they could have got at a lesser price. Since that is taken care of in para 17 of DPCO 1979, it may not be necessary to lean towards the submissions made by learned counsel for the respondent-company.