Case: Secy.,Ministry Of Chemicals &amp;Fertilizers Vs. M/S. Cipla Ltd.

These appeals by special leave preferred by the Union of India are directed against the common judgment of the Bombay High Court in a batch of writ petitions filed under Article 226 of the Constitution by the manufacturers/ importers of certain bulk drugs and their formulations. The bulk drugs concerned are seven in number. They are; Salbutamol, Theophylline, Cyproflaxacin, Norfloxacin, Cloxacillin, Doxycycline and Glipizide. These bulk drugs and the formulations made out of them are sold within the country and part of the quantities produced are also exported outside the country. The challenge is to the inclusion of the said bulk drugs in the first schedule to the Drugs (Price Control) Order, 1995 (hereinafter referred to as the DPCO). Though the fixation of price pursuant to the provisions of the said Order was also challenged in some of the writ petitions, that issue was not gone into by the High Court and at any rate, the mechanics of price fixation is not the contentions issue before us. However, it may be noted that the remedy by way of review is available under paragraph 22 of the DPCO to seek reconsideration of price fixation. The immediate provocation for filing the writ petitions in the High Court seems to be the notices issued by the National Pharmaceutical Pricing Authority, calling upon some of the Respondent-Companies to deposit the overcharged amounts in relation to the formulations of scheduled drugs.1.2 The High Court held that the concerned drugs should not have been brought within the purview of the DPCO, 1995 and consequently, there could be no fixation of price in relation to those drugs. The notices demanding overcharged amounts were quashed. The writ petitions were thus allowed by the Division Bench of High Court.2.1 The DPCO, 1995 which came into force on 6th January, 1995, was promulgated by the Central Government in exercise of the powers conferred by Section 3 of the Essential Commodities Act. It repealed the earlier DPCO of 1987, under which more number of drugs were subjected to price control. Drug as defined in Drugs & Cosmetics Act is one of the essential commodities.2.2 According to Section 2(a) of DPCO, Bulk Drug means any pharmaceutical, chemical, biological or plant product including its salts, esters, stereo-isomers and derivatives, conforming to pharmacopoeia or other standards specified in the Second Schedule to the Drugs and Cosmetics Act, 1940 and which is used as such or as an ingredient in any formulation. Formulation is defined to mean a medicine processed out of, or containing one of more bulk drug or drugs with or without the use of any pharmaceutical aids, for internal or external use in the diagnosis, treatment, mitigation or prevention of disease in human beings or animals.2.3 Paragraph 3 of DPCO empowers the Central Government to fix, from time to time, a maximum sale price at which the bulk drug specified in the first schedule shall be sold, after making such inquiry, as it deems fit. The opening clause of sub-para (1) spells out the avowed purpose of price control on the scheduled bulk drugs. The declared objective is to regulate the equitable distribution and increasing supplies of the specified bulk drug and making them available at a fair price. There is a prohibition against the sale of bulk drug at a price exceeding the maximum sale price fixed under sub-paragraph (1) plus local taxes, if any. As already observed, we are not concerned here with the modalities of fixation of price. They very inclusion of these bulk drugs in the schedule is being assailed on the ground that it is opposed to the norms laid down by the Central Government itself in the Drug Policy of 1994 and, therefore, the delegated legislative power exercised by the Government is arbitrary and violative of Article 14 of the Constitution. The plea of the respondents was accepted by the High Court.2.4 In the Drug Policy document issued on 15th September, 1994, the Central Government noticed that during the last decade, the drug industry had grown significantly in terms of production of bulk drugs and formulations and the export performance of the industry had been commendable. It was said that the pharmaceutical sector had been able to carve a special niche for itself in the international market as a dependable exporter of bulk drugs. The drug policy with regard to pricing has been stated thus in paragraph 9 of the policyPricing - The aberrations which have come to notice, in the listing of drugs and their categorization for the purpose of price control, needed to be eliminated by the use of transparent criteria applied across the board on all the drugs with the minimum use of subjectivity. The high turnover of a drug is an index of its extent of usage and is considered to meet the requirements of objectivity justifiable on economic considerations. However, the monopoly situation in cases of drugs with comparatively lower turnover has also to be kept in view. Also, as an experimental measure, drugs having adequate competition may not be kept under price control and if this proves successful it would pave the way for further liberalization. In the event, however, of price of these drugs not remaining within reasonable limits, the Government would reclamp priceparagraph 11, it is statedthe light of the apprehensions expressed in the Parliament on the likely spurt in the prices of medicines, it has been felt that it would not be desirable to allow automaticity in the pricing mechanism. The Government would set up an independent body of experts, to be called the National Pharmaceutical Pricing Authority, to do the work of price fixation. This expert body would also be entrusted with the task of updating the list of drugs under price control each year on the basis of the establishedThe Governments resolve to closely monitor the trends of prices of medicines and to take appropriate measures to reclamp price control in case the prices of such medicines rise unreasonably, has been stressed in paragraph 12. Then, we come to the most important paragraph in the Drug Policy i.e. 22.7.2 which bears the heading Span of Control. It sets out the criteria for bringing the drugs under price control. We quote paragraph 22.7.2:-22.7.2. Span of ControlThe criterion of including drugs under price control would be the minimum annual turnover of Rs. 400 lakhs.(ii) Drugs of popular use in which there is a monopoly situation be kept under price control. For this purpose for any drugs, having an annual turnover of Rs. 100 or more there is a single formulator having 90% or more market share in the Retail Trade (as per ORG) a monopoly situation would be considered as existing.(iii) Drugs in which there is sufficient market competition viz., at least 5 bulk drug producers and at least 10 formulators and none having more than the 40% market share in the Retail Trade (as per ORG) may be kept outside the price control. However, a strict watch would be kept on the movement of prices as it is expected that their prices would be kept in check by the forces of market competition. The Government may determine the ceiling levels beyond which increase in prices would not be permissible.(iv) Government will keep a close watch on the prices of medicines which are taken out of price control. In case, the prices of these medicines rise unreasonably, the Government would take appropriate measures, including reclamping of price control.(v) For applying the criteria, to start with, the basis would be the data upto 31st March, 1990 collected for the exercise of the Review of the Drug Policy. The updating of the data will be done by the National Pharmaceutical Pricing Authority as detailed in para 22.7.4(i).The central theme of the arguments is that the norms set out in sub-Paras (i), (ii) & (iii) have not been adhered to by the Government while framing the first schedule of DPCO in purported implementation of the drug policy. There was either deviation from the criteria set out or there was no scientific or rational assessment of the factors relevant to the norms. Most of the arguments centered round the interpretation of the three clauses in para 22.7.2 - an exercise which is usually associated with the construction of statutes. The sum and substance of the arguments on behalf of the respondents is that the seven bulk drugs get excluded from the span of control under one or more norms spelt out in para 22.7.2., whereas the stand of the appellants is that the concerned bulk drugs were included in the schedule only after being satisfied that they came within the ambit of price control criteria. It is also the contention of the appellant that thedecision to bring these important bulk drugs within price control is in accordance with the objectives underlying in Section 3 of the Essential Commodities Act, particularly, the interests of consumers. Every attempt was made to examine the facts and figures by an Expert Group of the standing committee, keeping in view the prescribed norms in Drug Policy. It is pointed out that the High Court cannot go into the intricacies of price fixation under Article 226 of the Constitution or sit in judgment over the exercise done by experts.

Court's reasoning:
The sales of the bulk drugs as such to the institutions etc., will be negligible i.e., about 15%, as per the certificate issued by ORG in one of the cases. It is, therefore, commenced that the contention that the ORG data does not afford the basis for ascertaining the annual turnover of the bulk drug, is untenable.5.4 The High Court, substantially agreeing with the contentions of the respondents- writ petitioners held that the expressionoccurring in Drugs Policy can only mean domestic sales figures and nothing else. Export sales cannot be included within the ambit of turnover. The High Court observed that the concepts ofare interrelated and inter-dependent. The expressionif interpreted in a contextual and purposive manner, would not include exports. The extent of usage of the bulk drug in the country would be determinative of turnover. By taking the export sale figures and the value of entire production of bulk drugs into account, the Central Government had acted contrary to its own guidelines contained in Drug Policy, 1994. The High Court then proceeded to discuss whether each of the drugs concerned could be brought within the purview of DCPO, 1995 and answered that question in favour of the writcan be no doubt that the meaning of the expressioneither in its ordinary or legal sense includes export sales. But, we must have regard to the terms and objectives of the policy and try to understand that expression accordingly. Para 9 of the Drug Policy, 1994 makes it clear that the high turnover of a drug is an index of its extent of usage.has obvious reference to consumption and consumption within the domestic market. Whether the drug is extensively used within the country is one of the considerations kept in view to clamp price control. The export potential of the drug or its usage in foreign countries could not have been the reason to notify the specified drugs for price control. If there is any doubt in this regard, it is dispelled by what is stated in paragraph 10 of the rejoinder affidavit which we quoted supra. To repeat, it was stated therein that the intent behind using the wordhas been to determine the extent of usage of a bulk drug in the country. It is also pertinent to note that the Govt. of India has not come forward with any explanation as to why export sales also should be taken into account in assessing the turnover as per the criteria laid down in the Drug Policy. For all these reasons, we are in agreement with the High Court that the export sales ought to have been excluded while calculating the turnover. How far the exclusion of export sales would make any difference is a differentour view, the clarification given by the Government of India reflects a reasonable view point and it cannot be said that by adopting such approach, a distorted meaning is given to the expressionmuch against the spirit of the policy. At any rate, two views are possible and it is not for the Court to decide which view isplea of discrimination was aimed at the drug known as Glibelclamide, which was excluded from the DPCO of 1987 and continued to remain excluded from the DPCO of 1995. The respondent did not even aver that the said drug had the turnover of more than 100 lacs and therefore it would fall within the mischief of clause (ii). On the basis of a bald plea, the infraction of Article 14 ought not to have been countenanced. The finding of the High Court in this regard is palpably wrong.9. We now summarize the conclusions as under:1. Where the Central Government as the delegate of legislative power announces a rational policy in keeping with the purposes of enabling legislation and even lays down specific criteria to promote the policy, the criteria so evolved become the guide-posts of its legislative action. While classifying the drugs for the purpose of price control, it is not open to the Government to flout or debilitate the set norms which it professed to follow in the interest of transparency and objectivity. Otherwise, there will be an element of arbitrariness and the delegated legislation will not withstand the test of Article 14.2. The expression turnover in Drug Policy, 1994 represents the sale value of bulk drug sold as such or in the form of formulations.3. Export sales should not be taken into account while computing turnover.4. The sum total of production and imports of bulk drug cannot be equated to turnover, though they are not altogether irrelevant in calculating the turnover.5. ORG data does not give exhaustive account of turn over of bulk drug. It may furnish the basis for estimating the turnover, but is not the sole guide.6. For the purpose of criterion No. (iii) of the Drug Policy, the single ingredient formulators alone ought to be taken into account as clarified by the Govt. of India.7. Burden lies on those who challenge the legislation on the ground of violation of Article 14 to make out their case by furnishing all the relevant material which is within their reach and knowledge. There should be frank disclosure of material facts, more so, when the plea is founded on certain factual aspects. The mere vagueness or lack of clarity in the stand taken by the Union of India does not by itself advance the case of the writ petitioners.8. The plea of writ petitioners ought to have been tested and subjected to scrutiny in the light of all relevant factors instead of merely considering whether the particulars furnished by the petitioners were effectively controverted or not. Such an approach of the High Court is wholly impermissible while deciding the validity of legislation-plenary or delegated, from the stand point of Article 14.9. The plea of discrimination between one drug and another is unfounded and should not have been accepted by the High Court.