(2013] 17 S.C.R. 918

UNION OF INDIA AND ANOTHER v.

M/S. SWISS GARNIER LIFE SCIENCES & ORS.

(CIVIL APPEAL NO. 5117 OF 2013)

JULY 4, 2013

[G.S. SINGHVI AND SUDHANSU

JYOTI MUKHOPADHAYA, JJ.]

Drugs (Prices Control) Order, 1995 - Paras 2(a), 2(u), C 2(v), 9, 11; First Schedule - "Bulk drug" - "Scheduled bulk drug - "Scheduled formulation" - 'Doxofylline' - Jurisdiction of the Government to fix the ceiling price or revise the price of Doxofylline - Price fixation notifications issued whereby the Government fixed the prices of "Doxofylline formulatiors" - D Challenge to - Notifications set aside by the High Court - Held: Doxofylline is derivative of Theophylline, a bulk drug, and Doxofylline in any formulation comes within the definition of scheduled formulation - Consequently, it was wel/ within the jurisdiction of the Government to fix the ceiling price of E Doxofyl/ine formulation under para 9 or para 11 of DPCO,

1995 - Interference with the Notifications by the High Court was uncal/ed for - Drugs and Cosmetics Act, 1940 - Second Schedule.

F The respondents filed writ petitions challenging the price fixation Notifications dated 30th April, 2009 and 17th November, 2009 whereby the Government had fixed the prices of "Doxofylline formulations" in exercise of power conferred under paras 9 and 11 of the Drugs (Prices ,., Control) Order, 1995. The High Court set aside the

Jforesaid Notifications holding that 'Doxofylline' is not a bulk drug within the meaning ascribed to it under para 2(a) of the DPCO, 1995.

The questions arising for consideration in the

UNION OF INDIA v. SWISS GARNIER LIFE 919

SCIENCES

present appeal were: (a) whether '.Doxofylline' is a bulk A drug within the meaning of para 2(a) of DPCO, 1995; (b) whether 'Doxofylline' is a 'scheduled bulk drug' within the meaning of para 2(u) of DPCO, 1995; (c) whether 'Doxofylline' is a "scheduled formulation" within the_ meaning of para 2(v) of DPCO, 1995; and (d) whether the fr appellant has the power to fix the ceiling price or revise the price of Doxofylline under the DPCO, 1995.

Allowing the appeals, the Court

HELD: 1. In exercise of powers conferred under . Section 3 of the Essential Commodities Act, 1955, the C

Central Government made order, namely, the. Drugs (Prices Control) , Order, 1995. It was so issued to control the prices of the essential drugs including life saving drugs. Para 2 of the order is the definition clause, Bulk drug is defined in para 2(a) while "formulation" is defined D in para 2(h). Para 2(U) defines 'scheduled bulk drug' whereas 'scheduled formulation' is defined in para 2(v).

Para 3 relates to power to fix the maximum sale prices of bulk drugs specified in the First Schedule of the DPCO,

1995. Special provisions relating to "fixation of price" are E provided under Para 9 and 11. [Paras 18, 20] [930-A, B,

C, E-F; 931-B-G; 934-B]

2. The First Schedule of the DPCO, 1995 indicates the 'bulk drugs' recognized by the Government. "Tl)eophylline" has been shown as one of the bulk drugs F for the purposP. of para 2 and 3. It is a 'bulk drug' shown at Serial No.34 of the First Schedule of DPCO, 1995 and is shown in the Indian pharmacopeia and conforms to the _ standard as per Second Schedule to the Drugs and Cosmetics Act, 1940. Therefore, Theophylline comes G within the meaning of bulk drug as defined in para 2(a) and also comes within meaning of 'scheduled bulk drug' [para 2(u)] and 'scheduled formulation' [para 2(v)]. [Paras

21, 30] [935-E-F; 942-B-C-]

3. 'Doxofylline' as such has not been shown as one H

A of the bulk drugs in the First Schedule of the DPCO,

1995. However, in reply to a letter written by the Department of Chemical and Petro-Chemicals, Ministry of Chemical and Fertilizer, New Delhi dated 5th December, 2008, the Indian Institute of Science (llSc), Bangalore vide s letter dated 23rd January, 2009 informed that Doxofylline was a derivative of scheduled drug Theophylline. From the expert opinion of llSc and the National Institute of Pharmaceutical Education and Research (NIPER), the details enclosed by the respondent- Mars Therapeutics c Ltd. with their Form 44, and the stand taken in their application for registration, it is clear that 'Doxofylline' is a derivative of 'Theophylline'. [Paras 21, 25, 27 and 28]

[935-E; 938-C; 939-D-E-H; 940-A-B]

4. The definition of "bulk drug" contained in para 2(a) o consists of two parts. The first part is applicable to "base

drug" i.e. any pharmaceutical, chemicals, biological or plant product. The second part, which is inclusive, applies to salts, esters, stereo-isomers and derivatives of such "base drugs''. The use of the word "includes" E implies that the definition of bulk drug contained in para 2(a) is very wide and it not only applies to the base drug but also ipso facto applies to its salts, esters, stereo- isomers and derivatives. By virtue of being, derivative of Theophylline, Doxofylline, ipso facto, is itself a bulk drug. ' Doxofylline is deemed to be a bulk drug within the F meaning of para 2(a) conforming to pharmacopoeia! and other standards specified in the Secom! Schedule to the ' Drugs and Cosmetics Act. In view of the definition of bulk drug [para 2(a)], Theophylline if used as such (i.e.

Theophylline) or as an ingredient (i.e. Doxofylline) in any G formulation, it will deem to be a bulk drug within the meaning under para 2(a). Doxofylline comes within the meaning of bulk drug as defined in para 2(a) and also within the meaning of 'scheduled bulk drug' as defined in para 2(u). [Paras 31, 32, 34 and 35] [943-A, F-H; 944-A-

H B]

UNION OF INDIA v. SWISS GARNIER LIFE 921

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State of Uttarakhand and others vs. Harpal Singh Rawat A

(2011) 4 sec 575 - referred to.

5. 'Scheduled formulation' is defined in para 2(v), means a formulation containing any bulk drug specified in the First Schedule, either individually or in 8 combination with other drugs, including one or more than one drug or drugs not specified in the First Schedule. Ooxofylline being the derivative of Theophylline, a bulk drug, and Ooxofylline in any formulation having held tQ be a bulk drug within the meaning of para 2(a), Ooxofylline also comes within the C definition of scheduled formulation under para 2(v). [Para

. 36] [944-B-0]

6. Under sub-para (1) of para 9, notwithstanding . anything contained in OPCO, 1995, the Government is D empowered to fix the ceiling price of a scheduled formulation. In v.iew of the finding that Ooxofylline formulation is a scheduled formulation as defined under para 2(v), the Government was very well within its jurisdiction to fix the ceiling price of Ooxofylline E formulation. It is not the case of the respondents that ceiling price has not been fixed as per formula laid down .in para 7 keeping in view the cost or efficiency or both of the major manufacturers of such formulation as laid down ip sub-para (1) of para 9. For the reason aforesaid, F there was no occasion for the High Court to interfere with the impugned Notification Nos.S.0.1124(E) and S.0.1084(E), both dated 30th April, 2009 or Notification dated 17th November, 2009. [Para 37] [944-0-G]

7. In the present case, though the appellants called G for.details from manufacturers of Ooxofylline formulations by letters dated 22nd July, 2008, 16th September, 2008, they failed to furnish information as required under OPCO, 1995, within the time specified therein. In view of H

A such refusal to furnish the detailed information, it was . well within the jurisdiction of the Government to fix price under para 11 on the basis of information as available with it, by order fixing a price in respect of Doxofylline or its formulation. Since Doxofylline is derivative of B Theophylline, a bulk drug, and Doxofylline in any

formulation comes within the definition of scheduled formulation, it is well within the jurisdiction of the Government to fix the ceiling price of Doxofylline formulation under para 9 or para 11 of DPCO, 1995. c Therefore, interference with Notification (s) both dated

30th April, 2009 and 17th November, 2009 is uncalled for. [Paras 38 and 40) [944-H; 945-A-B, G]

Case Law Reference:

(2011) 4 sec 575 referred to Para 32

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5117 of 2013.

From the Judgment & Order dated 15.03.2011 of the High E Court of Delhi at New Delhi in LPA No. 634 of 2010.

WITH

C.A. No. 5118 of 2013

F Indira Jaising, Rakesh Khanna, ASG, Aman Ahluwalia, A.

Radhakrishan, Supriya Jain, Shn:ekant N. Terdal for the Appellants.

S. Ganesh, Aditi Sharma, Umesh Kumar Khaitari, Varun G Singh for the Respondents.

The Judgment of the Court was delivered by

SUDHANSU JYOTI MUKHOPADHAYA, J. Leave granted. These appeals are preferred by the Union of India and H others against the common judgment dated 15th March, 2on

passed by the Division Bench of the Delhi High Court in LPA A No. 634 of 2010 with LPA No.790 of 2010. By the impugned judgment the Division Bench affirmed the order dated 19th May, 2010 passed by the learned Single Judge of the Delhi High Court in W.P.(C)No.10277 with W.P.(C)No.12958 of 2009 and dismissed the appeals preferred by the appellants.

2. The respondents filed the aforesaid two writ petitions challenging the price fixation Notifications dated 30th April, 2009 and 17th November, 2009 whereby the Governme"nt had fixed the prices of "Doxofylline formulations" in exercise of C power conferred under paras 9 and 11 of the Drugs (Prices Control) Order, 1995 (hereinafter referred to as 'DPCO, 1995' for short). Learned Single Judge set aside the Notifications aforesaid and held that 'Doxofylline' is not a bulk drug within the meaning ascribed to it under para 2(a) of the DPCO, 1995.

3. The factual matrix of the case is as follows:

On 14th May, 2008 an article appeared in the Newspaper 'THE HINDU', regarding the sale of 'Doxofylline formulations'

as a part of tactics to replace less profitable price controlled E products i.e. 'Theophylline' with huge profitable alternatives of the same class. The article captioned - 'Drug companies chasing profits, cheating patients; Costlier asthma drugs duck curb, hit market' wherei" the Editor of the Medical Journal, Monthly Index of Medical Specialties, Dr. C.M. Gulati., while giving various reasons for the real reason for 'Doxofylline' entry F into the country, stated that 'Doxofylline' was being offered as a more profitable alternative to Theophylline. Further, by successive orders in 2006, all loopholes to sell Theophylline products at high profit margins have been closed by the National Pharmaceutical Pricing Authority (NPPA), the body that G . monitors medicine prices in India. Therefore, nearly all

companies selling Theophylline formulations have been scouting for similar molecules outside the price control system irrespective of whether they are similar, better or even worse H

A than their current brands. It was alleged that the core issue is profits, not patients.

4. In the light of aforesaid newspaper report and complex of consideration implied in the DPCO, 1995, on 22nd July, B 2008, the appellants wrote to all the Doxofylline formulation manufactures askirig them to provide reasons as to why 'Doxofylline' should not be classified as derivative of Theophylline. Since the requisite information was not furnished by the manufacturers /formulators, including the respondents. herein, and Industry Associations even after a lapse of C substantial time, and the matter being significant, they were once again reminded by the appellants vide letter dated 16th September, 2008 to furnish the reply latest by 30th September, 2008. .

5. The matter was then considered by Technical Committee of the NPPA(2nd apellant). The Technical Committee decided to seek the experts opinion of the Indian Institute of Science, Bangalore (llSc for short) on whether 'Doxofylline' is a derivative of 'scheduled bulk drug' E Theophylline. The llSc, Bangalore, vide their letter dated 23rd January, 2009, informed the appellants that 'Doxofylline', is in fact, a derivative of scheduled bulk drug - Theophylline.

6. On the advice of the II Sc, Bangalore, it was decided by the 2nd appellant to fix the price of 'Doxofylline formulations'.

F A letter dated 17th February, 2009 was addressed by 2nd appellant to all known manufacturers of the Doxyfylline formulations seeking details of the purchase price of the bulk drug 'Doxofylline' necessitated for fixation of price of the

'Doxofylline formulation'.

G As per provisions and paras 4 and 5 of the DPCO, 1995, all the manufacturers of the bulk drugs are required to furnish details of manufacture, sales and cost of different bulk drugs including non-scheduled bulk drugs to the NPPA. However, H none of the manufacturers of the bulk drug 'Doxofylline'

complied with the mandatory requirement of DPCO provisions. A In absence of the required information from the manufacturers of bulk drug 'Doxofylline', 2nd appellant considered the price of the 'Doxofylline', based on best available information in terms of para 11 of the DPCO, 1995. Accordingly, the prices of the 'Doxofylline formulations' were fixed by 2nd appellant vide B Notification Nos.S.0.1124(E) and S.0.1084(E), both dated 30th April, 2009, as per the provisions of paras 9 and 11 of the DPCO, 1995.

7. The 2nd Appellant, vide their letter dated 14th May, c 2009 requested the llSc, Bangalore for specific views of llSc on the issue as to whether 'Doxofylline' is a salt or ester or stereo-isomer or derivative of the bulk drug Theophylline.

8. In the meantime, the respondents, who are manufacturers of 'scheduled formulations' of 'Doxofylline', filed D applications for review, both dated 19th May, 2009 under para 22 of DPCO, 1995 against the notifications aforesaid.

Therefore, the appellants, vide their letter dated 25t May, 2009 addressed to the Director, National Institute of Pharmaceutical Education and Research (NIPER), SAS Nagar, E Punjab, requested them to give expert-advice as to whether the drug 'Doxofylline' was a new chemical entity/new drug or a

I derivative of Theophylline. The respondents were also given opportunity of hearing on 9th June, 2009 to discuss the said review applications.

9. During the pendency of the review applications aforesaid, by letter dated 28th May, 2009. the llSc clearly opined that 'Doxofylline' i~ a 'derivative' of Theophylline.

The Director, NIPER, Professor P. Rama Rao, vide his G letter dated 1st June, 2009 also opined that:

"1.

Drug Doxofylline is a new chemical entity/new drug.

Drug Doxofylline is a derivative of Theophylline."

Going through the review applications filed by the respondents-companies and after giving them hearing, 1st appellant passed an order on 2nd July, 2009 directing 2nd appellant to consider the cost of raw material Doxofylline used in the formulations whose prices have been fi)(ed by Notifications dated 30th April, 2009 in respect of the Doxofylline formulations either by obtaining the cost of Doxofylline from the respondents or by fixing the cost ofDoxofylline by the authority.

10. Aggrieved by the review order dated 2nd July, 2009 passed in review applications, the respondents approached the Delhi High Court by filing writ petitions. During the pendency of the writ petitions, 2nd appellant requested the Pharma Industry Associations, i.e., Indian Drug Manufacturers' D Association (IDMA), Organisation of Pharmaceutical Producers of India (OPPI) and the Indian Pharmaceutical Association and 8 known bulk drug manufacturers to send the cost details of Doxofylline bulk drug, within a stipulated period. A reminder was also issued on 31st August, 2009. Twelve known

manufacturers including Mis Lupin Ltd. were requested on 11th August, 2009 to furnish the data I Form-Ill for the fixation of price of Doxofylline. Appellant No.2 also requested the manufacturers on 9th October, 2009 to furnish the detailed information in

Form-Ill of the DPCO, 1995 in respect of the revision in the price fixation of the Doxofylline based formulation.

11. In line with the review order of the Department o.f Pharmaceuticals and in view of the fact that the prices cif Doxofylline formulation were very high in the market, 2nd appellant decided that the prices of bulk drug Doxofylline may G be fixed on the basis of av; iilable information under para 3 and para 11 of DPCO, 1995 to bring down the prevaHing market price of Doxofylline based products for consumers/patients anq . also to provide a reasonable incentive to the manufacturers bY ·

givir.i9 a better price than that of Theophylline. Vid~ .. Notification

dated 17th November, 2009 upward price revision had been A carried out, based on maximum sale price of Rs.1487/kg for the Doxofylline bulk drug (as against the earlier adopted price of Rs.512/kg based on notified price of bulk drug Theophylline) in respect of Doxofylline formulations including those which were fixed/notified on 30th April, 2009.

12. Subsequent notification was also challenged by the respondents before the High Court and the learned Single Judge by judgment dated 19th May, 2010 allowed the writ petitions with cost of Rs.5,000/- in favour of the respondents C which has been affirmed by the Division Bench of the High Court.

13. Ms. Indira Jaising, learned Additional Solicitor General, appearing for the appellants submitted as follows:

(a) Doxofyl/ine is a bulk drug within the meaning of para

. 2(a) of DPCO, 1995, therefore, maximum sale price of such bulk drug can be notified under para 3. and sale price of formulations based on such bulk drug can be notified under para 9 of DPCO, 1995.

(b) Doxofyl/ine is a derivative of Theophylline, it comes within the meaning of bulk drug. The salts, esters, stereois9mers and derivatives of any bulk drug also come within the meanif)g of para 2(a) of DPCO, 1995.

(c) If the pharmaceutical, chemical, biological or plant product conforms the requirement of Second Schedule

of the Drugs and Cosmetics Act, 1940, it also applies to every salts, esters, stereo-isomers and derivatives of pharmaceutical, chemical, biological or plant product. But G salts, esters, stereo-isomers and derivatives of bulk drug need not require to be listed separately ii) First Schedule of DPCO, 1995, if the pharmaceutical, chemical, biological or plant product is listed in the First Schedule.

14. On behalf of the respondents the following broad contentions were advanced:

(1) Doxofylline is a new drug, and has been considered as a new drug by the authority under Rule 1228 of the D & C Rules. Doxofylline was previously a patented drug (for which patent has now expired), and therefore clearly meets the test of novelty etc. It cannot, therefore, be considered a derivative of Theophylline;

(2) Even if Doxofylline is considered to be a derivative, it is not a bulk drug as it is not mentioned in any official Pharmacopoeia. Under para 2(a) of DPCO, even salts, esters, stereo-isomers and derivatives must conform to the standards laid down in Second Schedule of the Drugs and Cosmetics Act, (i.e., being listed in pharmacopoeia);

(3) Even if Doxofylline is considered as a bulk drug it is not a 'scheduled bulk drug' within the meaning of para 2(u) as it is not specified in the First Schedule of DPCO.

As such it is not amenable to price control; and

(4) Doxofylline can only be tamenable to price control if it meets the price criteria set out in para 22. 7-2. "Span of Control" in the New Drug Policy of 1994.

15. The contentions which found favour with the High Court F are:

(i) Doxofylline does not conform the pharmacopoeia! or other standards specified in the Second Schedule to the Drugs and Cosmetics Act, 1940. Therefore, Doxofylline could not be regarded as a 'bulk drug' on the dates on which the impugned judgment/notifications were issued.

(ii) The definition of 'scheduled formulation' [para 2(v) of the DPCO, 1995] indicates that the expression - 'scheduled formation' refers to a formulation containing any bulk drug specified in the First Schedule either individually

or in combination with other drugs etc. As Doxofylline is A not specified in the First Schedule of DPCO, 1995, the Doxofylline formulation cannot be regarded as scheduled formulation and consequently would not be covered under para 9 of the DPCO, 1995 for fixing the ceiling price for such formulation.

(iii) Theophylline is not contained in the Doxofylline formulation either independently or in combination with other drugs. Therefore, Doxofylline formulation contains Doxofylline and not Theophylline and for that Doxofylline C formulations are not covered under the expression scheduled formulation appearing in para 2(v) of DPCO,

1995.

16. The High Court did not feel it necessary to go into the issue whether the impugned Notifications were issued after D satisfaction of the criteria specified in para 22.7-2 of the New Drug Policy.

17. The questions involved in these cases are:

(a) Whether 'Doxofylline' is a bulk drug within the meaning E of para 2(a) of DPCO, 1995;

(b)Whether 'Doxofylline' is a 'schedule bulk drug' within the meaning of para 2(u) of DPCO, 1995; and F (c)Whether 'Doxofyl/ine' is a "scheduled formulation" within the meaning of para 2(v) of DPCO, 1995; and

(d)Whether the appellant has power to fix the ceiling price or revise the price of Doxofylline under paras 9 and 10 of DPCO, 1995 ?

18. For determination of the above stated issues it is necessary at this stage to notice the broad features of the DPCO, 1995, as discussed below: H

A In exercise of powers conferred under Section 3 of the Essential Commodities Act, 1955, the Central Government made order, namely, the Drugs (Prices Control) Order, 1995.

It repealed the earlier the Drugs (Prices Control) Order, 1987.

It was so issued to control the prices of the essential drugs s including life saving drugs. Para 2 is the definition clause. Bulk

drug is defined in para 2(a) as under:

"2(a). '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 (23 of 1940), and which is used as such or as an ingredient in any formulation;"

Whereas para 2(f) defines "drug", In this case, we are concerned with para 2(f)(iii) which indicates "drug" includes._ "bulk drugs and formulations". The same is quoted hereunder:

"2(f)(iii). "bulk drugs and formulations"

Then comes to what is defined as "formulation" in para 2(h) and reads as follows:

"2(h).'formulation' means a medicine processed out of,

or containing one or more bulk drug or drugs with or without the use of any pharmaceutical aids, for internal or external use for or in the diagnosis, treatment, mitigation or prevention of disease in human beings or animals, but shall not include-

(i) any medicine included in any bona fide Ayurvedic (including Sidha) or Unani (Tibb) systems of medicines;

(ii) any medicine included in the Homoeopathic system of medicine; and

(iii) any substance to which the provisions of the A Drugs and Cosmetics Act, 1940 (23 of 1940) do not apply;"

Para 2(u) defines 'scheduled bulk drug" in the following manner:

"2(u) 'scheduled bulk drug' means a bulk drug specified in the Firs1 Schedule;"

Whereas "scheduled formation" is defined in para 2(v) as

follows: C

"2(v) 'scheduled formulation' means a formulation containing any bulk drug specified in the First Schedule either individually or in combination with other drugs, including one or more than one drug or drugs not specified in the First Schedule except single ingredient D formulation based on bulk drugs specified in the First Schedule and sold under the generic name;·

19. From the aforesaid definitions, we find that for the purpose of coming within the meaning of bulk drug, E pharmaceutical, chemical, biological or plant product including its salts, esters, stereo-isomers and derivatives should conform to pharmacopoeia! or other standards specified in the Second Schedule to the Drugs and Cosmetics Act, 1940, while for the puri)ose of coming within the purview of "scheduled bulk drug" F within the meaning of para 2(u) or "scheduled formulation" within the meaning of para 2(v), it is not necessary to refer to the Second Schedule of the Drugs and Cosmetics Act, 1940, the bulk drug is specified in the First Schedule of DPCO, 1995.

20. We will now move into para 3 which relates to power G to fix the maximum sale prices of bul~ drugs specified in the First Schedule, which reads as follows:

"3. Power to fix the maximum sale prices of bulk drugs specified in the First Schedule.-(1)The Government H

A may, with a view to regulate the equitable distribution and increasing supplies of a bulk drug specified in the First Schedule and making it available at a fair price, from different manufacturers, after making such inquiry as it deems fit, fix from time to time, by notification in the B Official Gazette, a maximum sale price at which such bulk drug shall be sold:

Provided that for the purpose of enquiry, in addition to the information required to be furn/shed by the c manufacturers under this Order, the manufacturers shall provide any such additional information as may be required by the Government, and shall allow for inspection of their manufacturing premises for verification through on the spot study of manufacturing processes

D and faculties and records thereof, by the Government.

(2)While fixing the maximum sale price of a bulk drug under sub-paragraph (3), the Government shall take into consideration a post-tax return of fourteen per cent on net worth or a return of twenty-two percent on capital E employed or in respect, of a new plant an internal rate of return of twelve per cent based on long term marginal costing depending upon te option for any of the specified rates of return that may be f:!Xercised by the manufacturer of a bulk drug:

F Provided that where the production is from basic stage, the Government shall take into consideration a , post-tax return of eighteen percent on net worth oia return of twenty-six percent on capital employed :

G Provided further that the option with regard to the rate of return once exercised by a manufacturer shall be final and no change of rates shall be made without the prior approval of the Government.

H (3)No person shall sell a bulk drug at a price

exceeding the maximum sale price fixed under sub- A paragraph (1) plus local taxes, if any:

Provided that until the price of a bulk drug is fixed, by the Government under sub-paragraph (1), the price of such bulk drug shall be the price which prevailed 8 immediately before the commencement of this Order and the manufacturer of such bulk drug shall not. sell the bulk drug at a price exceeding the price prevailing immediately before the commencement of this Order.

(4)Where, after the commencement of this Order, C any manufacturer commences Production of any bulk drug specified in the First Schedule, he shall within fifteen days of the commencement of production of such bulk drug, furnish the details to the Government in Form I, and any such additional information as may be required by D . the Government and the Government may after receipt of the information and after making such inquiry as it may deem fit, may fix the maximum sale price of bulk drug by notification in the Official Gazette.

(5)Any manufacture!, who desires revision of the maximum sale price of a bulk drug fixed under subparagraph (1) or (4) or as permissible under subparagraph (3), as the case may be, shall make an application to the Government in Form 1, and the Government shall after making such inquiry, as it deems fit within a period of four months from the date of receipt of the complete information, fix a revised price for such bulk drug or reject the application for revision for reasons

o be recorded in writing."

In the present case, it is not necessary for us to go into the details of para 4 and para 5 except to state that the manufacturers producing "scheduled bulk drugs" are required to furnish details under para 4 as per the said order to tht> Central Government. Similarly, manufacturers of "non-

A schJ:!duled bulk drugs" are also required to furnish details as per para 5 to the Central Government.

We will now deal with the special provisions relating to "fixation of price" as provided under para 9 and 11, which read B as follows:

9. Power to fix ceiling price of Scheduled formulations.- (1)Notwithstanding anything contained in this Order, the Government may, from time to time, by notification in the Official Gazette, fix the ceiling price of a Scheduled formulation in accordance with the formula laid down in paragraph 7, keeping in view the cost or efficiency, or both, of major manufacturers of such formulation and such price shall operate as the ceiling sale price for all such packs including those sold under generic name and for every manufacturer of such formulations.

(2)The Government may, either on its own motion or on . application made to it in this behalf by a manufacturer in Form II/ or Form IV, as the case may be, after calling for such information as it may consider necessary, by notification in the Official Gazette, fix a revised ceiling price for a Scheduled formulation.

(3)With a view to enabling the manufacturers of similar formulations to sell those formulations in pack size different to the pack size for which ceiling price has been notified under the sub-paragraphs (1) and (2), manufacturers shall work out the price for their respective formulation packs in accordance with such norms, as may be notified by the Government, from time to time, and he shall intimate the price of formulation pack, so worked out, to the Government and such formulation packs shall be released for sale only after the expiry of sixty days after such intimation.

Provided that the Government may, if it considers A necessary, by order revise the price so intimated by the . manufacturer and upon such revision, the manufacturer sha/l .m:it sell such formulation at a price exceeding the price so revised.

B Explanation - For the purpose of.this paragraph the "Scheduled formulation" includes single ingredient formulation based on bulk drugs specified in the First Schedule and sold under the generic name."

11. Fixation of price under certain cirdumstances. - C Where any manufacturer or imporlf!r of bulk drug or . formulation fails to submit the application for price fixation or revision, as the case may be, or to furnish information as required under this Order, within the time specified therein, the Government. may, on the basis_ of such D information as may be available with it, by order fix a price in respect of such bulk drug or formulation as the case may be."·

21. First S_chedule of the DPCO, .1995 indicates the 'bulk E drugs' recognised by the Government. There are 75 Bulk Drugs shown therein. At Serial No.34 "Theophylline" has been shown as one of the bulk drugs for the purpos~ of para 2 and 3. 'Doxofylline' as such has not been shown as one ofthe bulk drugs in the First Schedule of the OPCO, 1995.

22. The Second Schedule of the Drugs and Cosmetics Act, 1940 provides "Standards to be complied with by imported drugs and by drugs _manufactured for sale, stocked or exhibited for sale or distributed". The class of drugs and the standards to be complied with has been shown G therein. For the purpose of the present case, we would refer Item Nos.1 and 5 of the class of drug and standards to be complied with, which read as under: .,

"THE SECOND SCHEDULE

(See sections 8 and 16)

STANDARDS TO BE COMPLIED WITH BY IMPORTED

DRUGS AND BY DRUGS MANUFACTURED FOR SALE,

STOCKED OR EXHIBITED FOR SALE OR DISTRIBUTED

Class of drug Standard to be complied with

1. Patent or proprietary The formula of list of medicines [other than ingredients displayed in Homoeopathic medicines] the prescribed manner on the label or container and such other standards as may be prescribed.

5. Other drugs- Standards of identity,

(a) Drugs included in the purity and strength Indian Pharmacopoeia specified in the edition of the Indian Pharmacopoeia for the time being in force and such other standards

s may be prescribed.

In case the standards of identity, purity and strength for drugs are not specified in the edition of the Indian Pharmacopoeia for the time being in force but are specified in the edition of the Indian Pharmacopoeia immediately preceding the standards of identity, puri!j and strength shall be those occurring in such immediately preceding edition of the Indian

(b) Drugs not included in the

Indian Pharmacopoeia but which are included in the official Pharmacopoeia of any other country.

Pharmacopoeia and such other standards as may be prescribed.

Standards of identity, purity and strength specified for drugs in the edition of such official Pharmacopoeia of any other country for the

time being in force and such other standards as may be c prescribed. In case the standards of identity, purity and strength for drugs are not specified in the edition of such official Pharmacopoeia for the D

time being in force, but are specified in the edition immediately preceding the standards of identity, purity and strength shall be those E occurring in such immediately preceding edition of such official Pharmacopoeia and such other standards as may be prescribed.

23. According to the respondents 'Doxofylline' is a new drug; it is not a 'bulk drug' as 'Doxofylline' is not mentioned in the official pharmacopeia. Even salts, ester, stereo-isomers and G derivatives of Doxofylline do not conform to the standards laid down in the Second Schedule to the Drugs and Cosmetics Act,

1940. 'Doxofylline' cannot be considered as a derivative of 'Theophylline'.

24. In answer to this, the stand of the appellants is that 'Doxofylline' is derivative of Theophylline, therefore, by virtue of being a derivative, ipso facto, is itself a bulk drug.

25. In view of such stand taken by the parties, it is

8 necessary to decide on the question whether the 'Doxofylline' is a derivative of 'Theophylline'.

In reply to a letter written by the Department of Chemical and Petro-Chemicals, Ministry of Chemical and Fertilizer, New

Delhi dated 5th December, 2008 in connection with Doxofylline C as a derivative of Theophylline, Indian Institute of Science,

Bangalore vide letter dated 23rd January, 2009 informed that Doxofylline, was in fact, a derivative of scheduled drug Theophylline. The said letter is quoted herein:

D "Dear Mr. Jagdish Kumar

Thank you for your letter of December 5, 2008 in connection of Doxophylline as a derivative of Theophylline a scheduled bulk drug under DPCO 1995.

I have gone through the structures of both the compounds and the methods of preparation of Doxophy/line from Theophylline. My recommendation is as follows.

While Doxophylline is a new compound it is prepared by N-alkylation of Theophylline by treatment with 2boromethy -13dioxalane. Instead of replacement of hydrogen with methyl or ethyl or propyl group it is being replaced by 1.3 dixalan 2-yl methyl group. Therefore it should be considered as an N-a/kyl derivative of

Theophylline.

My recommendation is that Doxophylline is a derivative of scheduled drug Theophy/line. If you need any others clarification feel free to in tough with me.

With kind regards (SD) A

S. Chandrasekartan."

26. The National Institute of Pharmaceutical Education and Research (NIPER) by its letter dated. 1st June, 2009 informed as follows:

"After going through your letter and the information as provided by Prof. A.K. Chakraborti, I am of the opinion that:

1.Drug Doxofylline is a new chemical entity/new drug.

2.Drug Ooxofylline is a derivative of Theophylline."

27. The aforesaid opinions of the experts of Indian Institute D of Science (llSc), Bangalore, and Director, National Institute of Pharmaceutical Education and Research (NIPER) have not been disputed by the respondents.

28. In .the present case, what we find is that the present stand taken by the respondents is contrary to their stand taken E before the authorities while they applied for grant of registration of Doxofylline 400 mg. tablets. Th.e record as enclosed by the respondent-Mars Jherapeutics Ltd. reveals the following facts:

(i) Application for grant of registration of Doxofylline 400 F mg. tabs. formulation was filed on 3rd October, 2003.

Therein the respondents enclosed a number of documents including reports in its support. Item No.3 is "a copy of the . . letter from Mis. Suven Pharmaceuticals Ltd., Hyderabad relating to supply of 'Bulk Drug Doxofylline'. This shows G that the respondents had knowledge that Doxofylline is a bulk drug.

(ii) In Form-44 the composition of the formulation of Doxofylline 400 mg. as shown at Serial No.8 the active H

A ingredients and inactive ingredients as Annexure I and II and which is specification and standard test procedures over 'active and inactive ingredients'. The analytical control schedule shows that Doxofylline is the ingredient of Theophyllin and the relevant portion of the same is B extracted below:

"7-Theophyllin acetaldehyde

Theophylline

<0.2%

2.91- 0.5% c Theophyllinemethyl - 1.3-dioxolane"

(iii) Under the heading denomination while common denomination has been shown "Doxofylline" , which ha.s been mentioned as follows:

D "Denomination

Common denomination Doxofyl/ine

Systematic demonation : 2-7' - Theophyl/inemethyl-1,3- E dioxolane"

(iv) In Annexure II attached with Form 44 Chemical Pharmaceutical information has been supplied therein.

Chemical information has been shown as follows:

''Name of the material/Code:Doxofylline .category:Finished Formulation

Chemical Information

General Name Doxofylline

Chemical Name (s) 2-7' -Theophyl/inemethyl-1. 3dioxolane"

(v) On tffe Toxicological and Pharmacological (Pre- A Clinical) documentation of 'Doxofyl/ine' _has been shown in the expert report enclosed with Form 44, relevant portion of which reads as follows:

"1. INTRODUCTION

Doxofylline or 2(7'-theophyllinmethyl)-1.3"dioxolane is a theophylline derivative with the following structural formula.

_,-CJ---i ,,/ !

D cr-1~-CI-! J II

I<"-~

H3C-,/CJ=N'1 0

./, C:: N Dy '-.N

ooxo;= v LL1NE

D .

Dqxofylline was synthesized with the aim of reducing the typical theophyfline side effects, without affecting antibronchospastic and bronchodilator effects that are the main pharmacological activities of methylxanthines useful for the therapy of asthma." E

From the expert opinion of llSc and NIPER which has been submitted by the appellants, details enclosed by the respondent- Mars Therapeutics Ltd. with their Form 44, and the stand taken in their application for registration, we find and hold F that Doxofylline is a derivative of Theophylline.

29. The difference between 'bulk drug' [para 2(a) ], 'scheduled bulk drug' [para 2(u)] and 'scheduled formulation' [para 2(v)] has already been noticed in the preceding G paragraphs. As per definition the bulk drug should conform to the pharmacopoeia! or other standards specified in Second Schedule tp the Drugs and Cosmetics Act, 1940. On the other hand, to find out whether a drug is a 'scheduled bulk drug' within the meaning of para 2(u) or 'scheduled formulation' within the H

A meaning of para 2(v), one has to find out whether the bulk drug is specified in the First Schedule of DPCO, 1995, individually or in combination with other drugs.

30. Theophylline is a 'bulk drug' shown at Serial No.34 of

8 the First Schedule of DPCO, 1995. It is also not in dispute that Theophylline is shown in the Indian pharmacopeia and conforms to ttie standard as per Second Schedule to the Drugs and ·

Cosmetics Act, 1940. Therefore, Theophylline comes within the meaning of bulk drug as defined in para 2(a) and also comes C within meaning of 'scheduled bulk drug' [para 2(u)] and

'scheduld formulation' [para 2(v)].

31. From the experts opinion of llSc, Bangalore and NIPER, Punjab and opini<rn enclosed with the Form 44 • submitted by the respondent-Mars Therapeutics Ltd., we have D noticed and held that Doxofylline is a derivative of Theophylline.

In the preceding paragraph we have noticed that Theophylineis a bulk drug, therefore, and by virtue of being derivative of Theophylline, Doxofylline, ipso facto, is itself a bulk drug. Where a certain "pharmaceutical, chemical, biological or plant .

E product", i.e. the "base drug" satisfies the test laid down under para 2(a), its "salts, esters, stereo-isomers and derivatives" are also automatically included and to be treated as bulk drug in terms of para 2(a). Therefore, if the "base drug" conforms the requirement of Second Schedule to the Drugs and Cosmetics F Act, 1940, it automatically applies to every salts, esters, stereoisomers and derivatives of such "base drug".

32. As per Para 2(a) 'bulk drug' means any pharmaceutical, chemical, biological or plant product including its salts, esters, stereo-isomers and derivatives, conforming to G 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. The words "includes also" in the context of definition of lease was considered by this Court in State of Uttarakhand and others H vs. Harpal Singh Rawat, (2011) 4 SCC 575. If the ratio of the

said case is followed, we find and hold that the definition of A "bulk drug" contained in para 2(a) consists of two parts. The first part is applicable to "base drug" i.e. any pharmaceutical, chemicals, biological or plant product. The second part, which is inclusive, applies to salts, esters, stereo-isomers and. derivatives of such "base dn,1gs". The use of the word "includes" B implies that the definition of bulk drug contained in para 2(a) is very wide and it not only applies to the base drug but also ipso facto applis to its salts, esters, stereo-isomers and derivatives.

33. In view of the definition of 'bulk drug' [para 2(a)] and C our finding as recorded above, we hold that if any pharmaceutical, chemical, biological or plant product conforms to pharmacopeial or other standards accepted under the Drugs and.Cosmetics Act, 1940, and thus comes within the meaning of bulk drug, as defined in para 2(a), all salts, esters, stereo D isomers and derivatives ofsuch bulk drug are, ipso facto, deemed to be conforming to the. pharmacopoeia! or other standards accepted under the Drugs and Cosmetics Act and are deemed to be bulk drug within the meaning of para 2(a) of

DPCO, 1995.

34. We have already held that Doxofylline is a derivative of Theophylline and admittedly, Theophylline is a bulk drug shown in First Schedule (Item No.34) of DPCO, 1995 and is conforming to pharmacopoeia! and other standards specified F in the Drugs and Cosmetics, Act. We hold that Doxofylline is deemed to be a bulk drug within the meaning of para 2(a) co_nforming to pharmacopoeia! and other standards specified in the Second Schedule to the Drugs and Cosmetics Act.

Further, in view of the definition of .bulk drug [para 2(a)], G Theophylline if used as such (i.e. Theophylline) or as an ingredient (i.e. Doxofylline) in any formulation, it will deem. to -be a bulk drug within the meaning under para 2(a).

35. 'Scheduled bulk drug' means a bulk drug specified in the First Schedule of DPCO, 1995 [Para 2(u)]. Theophylline has H

A been shown as one of the scheduled drug at Serial No.34 of the First Schedule. In view of our finding that Doxofylline is a derivative of Theophylline, we hold that Doxofylline comes within 1 the meaning of bulk drug as defined in para 2(a) and also within the meaning of 'scheduled bulk drug' as defined in para 2(u).

36. 'Scheduled formulation' is defined in para 2(v), means a formulation containing any bulk drug specified in the First Schedule, either individually or in combination with other drugs, including one or more than one drug or drugs not specified in the First Schedule. In view of the finding recorded above, C Doxofylline being the derivative of Theophylline, a bulk drug, and Doxofylline in any formulation having held to be a bulk drug within the meaning of para 2(a), we hold that Doxofylline also comes within the definition of scheduled formulation under para 2(v).

37. Under sub-para (1) of para 9, notwithstanding anything contained in DPCO, 1995, the Government is empowered to fix the ceiling price of a scheduled formulation. In view of our finding that Doxofylline formulation is a scheduled formulation E as defined under para 2(v), we hold that the Government was very well within its jurisdiction to fix the ceiling price of Doxofylline formulation.

It is not the case of the respondents that ceiling price has not been fixed as per formula laid down in para 7 keeping in view the cost or efficiency or both of the major manufacturers of such formulation as laid down in sub-para (1) of para 9. For the reason aforesaid, there was no occasion for the High Court to interfere with the impugned Notification Nos.S.0.1124(E) and S.0.1084(E), both dated 30th April, 2009 or Notification G dated 17th November, 2009.

38. In the present case we have noticed that though the appellants called for details from manufacturers of Doxofylline formulations by letters dated 22nd July, 2008, 16th September, H 2008, they failed to furnish information as required under

DPCO, 1995, within the time specified therein. In view of such A refusal to furnish the detailed information, it was well within the jurisdiction of the Government to fix price under para 11 on the basis of information as available with it, by order fixing a price in respect of Doxofylline or its formulation.

39. In this case, we have noticed the news appeared in the newspaper insinuating that drug companies were cheating patients, by following a strategy by way of which, they would stop selling less profitable, price controlled products and replacing them with highly profitable alternatives of the same class. The article captioned - 'Drug companies chasing profits, cheating patients; Costlier asthma drugs duck curb, hit market'.

Dr. C.M. Gulati have given various reasons for Doxofylline entry into the country, stated that" 'Doxofylline' has been offered as

a more profitable alternative to Theophylline. Further, by successive orders in 2006, all loopholes to sell Theophylline D products at high profit margins have been closed by the National Pharmaceutical Pricing Authority (NPPA), the body that monitors medicine prices in India. Therefore, nearly all companies selling Theciphylline formulations have been scouting for similar molecules outside the price control system

irrespective of whether they are similar, better or even worse than their current brands" adds Dr. Gulati. On the basis of such ' report, the Government suo moto took the matter under para 11 of the DPCO, 1995, called for reports and opinion of experts and then fixed the price.

40. In this view of the matter and having regard to the facts that we have held that Doxofylline is derivative of Theophylline,

a bulk drug, and Doxofylline in any formulation comes within the definition of scheduled formulation, we hold that it is well within G the jurisdiction of the Government to fix the ceiling price of

Doxofylline formulation under para 9 or para 11 of DPCO,

1995. Therefore, interference with Notification (s) both dated 30th April, 2009 and 17th November, 2009 is uncalled for.

41. Consequently, the appeals are allowed; the judgments H

A and orders dated 19th May, 201 O and 15th March, 2011 passed respectively by the Single Judge and the Division Bench of the Delhi High Court are set aside. The writ petitions preferred by the respondents in the High Court are dismissed.

The parties shall bear their own cost.

B Bibhuti Bhushan Bose Appeal allowed.