TMI Blog1987 (4) TMI 478X X X X Extracts X X X X X X X X Extracts X X X X ..... the writ petition in the High Court dismissed. - Civil Appeal No. 1603 of 1985 - - - Dated:- 10-4-1987 - REDDY, O. CHINNAPPA AND SINGH, K.N., JJ. G. Ramaswamy, Additional Solicitor General G. Subramanium, C.V. Subba Rao and A. Subba Rao for the Appellants A.B. Diwan, S.I. Thakar, D.D. Udeshi, H.S. Merchant, Ravinder Narain, Mrs. A.K. Verma and D.N. Mishra for the Respondents JUDGMENT CHINNAPPA REDDY, J. It was just the other day that our brothers Ranganath Misra and M.M. Dutt, JJ. had to give directions in a case (Vincent Panikurbangara v. Union of India) where a public spirited litigant had complained about the unscrupulous exploitation of the Indian Drug and Pharmaceutical Market by multinational Corporations by putting in circulation low-quality and even deleterious drugs. In this group of cases we are faced with a different problem of alleged exploitation by big manufacturers of bulk drugs. The problem is that of high prices, bearing, it is said, little relation to the cost of production to the manufacturers. By way of illustration, we may straightaway mention a glaring instance of such high-pricing which was brought to our notice at the very commen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly and distribution thereof and trade and commerce therein'. In particular, s. 3(2)(c) enables the Central Government, to make an order providing for controlling the price at which any essential commodity may be bought or sold. It is in pursuance of the powers granted to the Central Government by the Essential Commodities Act that first the Drugs (Prices Control) Order, 1970 and later the Drugs (Prices Control) Order, 1979 were made. Armed with authority under the Drugs (Prices Control) Order, 1979 the Central Government issued notifications fixing the maximum prices at which various indigenously manufactured bulk drugs may be sold by the manufacturers. These notifications were questioned on several grounds by the manufacturers and they have been quashed by the Delhi High Court on the ground of failure to observe the principles of natural justice. Since prices of 'formulations' are primarily dependent on prices of 'buli drugs', the notifications fixing the retail prices of formulations were also quashed. The manufacturers had also filed review petitions before the Government under paragraph 27 of the 1979 Order. The review petitions could not survive after th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te--,in which case the substantial non-observance of the statutorily prescribed mode of observing natural justice may have the effect of invalidating the subordinate legislation. The right here given to rate payers or others is in the nature of a concession which is not to detract from the character of the activity as legislative and not quasijudicial. But, where the legislature has not chosen to provide for any notice or hearing, no one can insist upon it and it will not be permissible to read natural justice into such legislative activity. Occasionally, the legislature directs the subordinate legislating body to make 'such enquiry as it thinks fit' before making the subordinate legislation. In such a situation, while such enquiry by the subordinate legislating body as it deems fit is a condition precedent to the subordinate legislation, the nature and the extent of the enquiry is in the discretion of the subordinate legislating body and the subordinate legislation is not open to question on the ground that the enquiry was not as full as it might have been. The provision for 'such enquiry as it thinks fit' is generally an enabling provision, intended to facilita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent facts and declares rights and liabilities while legislation indicates the future course of action. Adjudication is determinative of the past and the present while legislation is indicative of the future. The object of the rule, the reach of its application, the rights and obligations arising out of it, its intended effect on past, present and future events, its form, the manner of its promulgation are some factors which may help in drawing the line between legislative and non-legislative acts. A price fixation measure does not concern itself with the interests of an individual manufacturer or producer. It is generally in relation to a particular commodity or class of commodities or transactions. It is a direction of a general character, not directed against a particular situation. It is intended to operate in the future. It is conceived in the interests of the general consumer public. The right of the citizen to obtain essential articles at fair prices and the duty of the State to so provide them are transformed into the power of the State to fix prices and the obligation of the producer to charge n6 more than the price fixed. Viewed from whatever angle, the angle of general ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, [1973] 3 SCC 435 and Premier Automobiles Ltd. v. Union of India, [1972] 2 SCR 526 a constitution bench of the court observed that the dominant object and the purpose of the legislation was the equitable distribution and availability of commodities at fair price and if profit and the producer's return were to be kept in the forefront, it would result in losing sight of the object and the purpose of the-legislation. If the prices of yarn or cloth were fixed in such a way to enable the manufacturer or producer recover his cost of production and secure a reasonable margin of profit, no aspect of infringement of any fundamental right could be said to arise. It was to be remembered that the mere fact that some of those were engaged in the industry, trade or commerce alleged'that they were incurring loss would not render the law stipulating the price unreasonable. It was observed, The control of prices may have effect either on maintaining or ,increasing supply of commodity or securing equitable distribution and availability at fair prices. The controlled price has to retain this equilibrium in the supply and demand of the commodity. The cost of production, a reasonable re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expediency and fairness for that of Congress. This is so even though the quota thus fixed may demonstrably be disadvantageous to certain areas or persons. This Court is not a tribunal for relief from the crudities and inequities of complicated experimental economic legislation . In Saraswati Industrial Syndicate Ltd. v. Union of India, [1974] 2 SCC 630; the Court observed, 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. It could not, therefore, give rise to a complaint that a rule of natural justice has not been followed in fixing the price. Nevertheless, the criterion adopted must be reasonable. Reasonableness, for purposes of judging whether there was an excess of power or an arbitrary exercise of it, is really the demonstration of a reasonable nexus between the matters which are taken into account in exercising a power and the purposes of exercise of that power. It was also reiterated that the decision in Shree Meenakshi Mills' case was based on a special agreement between the parties and therefore, had no relevance to the question before them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e type of control order which is now before us because it satisfies the tests of legislation. A legislative measure does not concern itself with the facts of an individual case. It is meant to lay down a general rule applicable to all persons or objects or transactions of a particular kind or class. In the case before us, the Control Order applies to sales of mustard oil anywhere in India by any dealer. Its validity does not depend on the observance of any procedure to be complied with or particular types of evidence to be taken on any specified matters as conditions precedent to its validity. The test of validity is constituted by the nexus shown between the order passed and the purposes for which it can be passed, or in other words by reasonableness judged by possible or probable consequences. In New India Sugar Works v. State of Uttar Pradesh, [1981] 2 SCC 293 there was an indication though it was not expressly so stated that the question of observing natural justice did not arise in cases of price fixation. In Laxmi Khandsari v. State of Uttar Pradesh, [1981] 2 SCC 600 it was held that the Sugar Cane Control Order, 1966 was a legislative measure and therefore, rules of natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi, and Prag Ice. Panipat and Anakapalle were both cases where the question was regarding the price payable to a person who was required to sell to the Government a certain percentage of the quantity of sugar produced in his mill. The Order requiring him to sell the sugar to the Government was made under s. 3(2)(f) of the Essential Commodities Act under which the Central Government was enabled to make an order requiring any person engaged in the production of any essential commodity to sell the whole or specified part of the quantity produced by him to the Government or its nominee. It will straight-away be seen that an order under s. 3(2)(f) if a specific order directed to a particular individual for the purpose of enabling the Central Government to purchase a certain quantity of the commodity from the person holding it. It is an order for a compulsory sale. When such a compulsory sale is required to be made under s. 3(2)(f), the question naturally arises what is the price to be paid for the commodity purchased? Section 3(3C) provides for the ascertainment of the price. It provides that in calculating the amount to be paid for the commodity required to be sold regard is to be had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive character of the activity is not shed and an administrative or quasi-judicial character acquired merely because guidelines prescribed by the statutory order have to be taken into account. We may refer at this juncture to some illuminating passages from Schwrtz's book on 'Administrative Law'. He said: If a particular function is termed legislative or rulemaking rather than judicial or adjudication, it may have substantial effects upon the parties concerned. If the function is treated as legislative in nature, there is no right to notice and hearing, unless a statute expressly requires them. If a hearing is held in accordance with a statutory requirement, it normally need not be a formal one, governed by the requirements discussed in Chapters 6 and 7. The characterization of an administrative act as legislative instead of judicial is thus of great significance. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX X As a federal court has recently pointed out, there is no bright line between rule-making and adjudication. The most famous pre-APA attempt to explain the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of the commencement of the order. He was required to report this price to the Central Government within two weeks of the commencement of the order and was further prohibited from increasing the price without obtaining the approval of the Central Government. A Committee on Drugs and Pharmaceutical Industry, popularly known as the Hathi Committee was appointed by the Government of India to enquire into the various facets, of the Drug Industry in India. One of the terms of reference was 'to examine the measures taken so far to reduce prices of drugs for the consumer, and to recommend such further measures as may be necessary to rationalise the prices of basic drugs and formulations.' The Hathi Committee noticed that 'in a country like India where general poverty and the wide disparities in levels of income between different sections existed' it was particularly important to emphasise 'the social utility of the industry and the urgent need for extending as rapidly as possible certain minimum facilities in terms of preventive and curative medicines to the large mass of people both urban and rural'. It was said, The concern about drug prices, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance, the Hathi Committee was of the view that this particular variant selectivity may be administratively simpler. The Drugs (Prices Control) Order, 1979 was made pursuant to this Statement of Policy. Paragraph 2(a) of the Drugs (Prices Control) Order, 1979 defines 'bulk drug' to mean any substance including pharmaceutical, chemical, biological or plant product or medicinal gas conforming to pharmacological or other standards accepted under the Drugs and Cosmetics Act, 1940, which is used as such or as in ingredient in any formulations. Formulation is defined as follows:- Formulation means a medicine processed out of, or containing one or more bulk drugs 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 bona fide Ayurvedic (including Sidha) or Unani (Tibb) Systems of medicine; (ii) any medicine included in the Homoeopathic system of medicine; (iii) any substance to which the provisions of the Drugs and Cosmetics Act, 1940 (XXIII of 1940), do not apply The expressions fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion efficient manufacturer is defined to mean a manufacturer-(i) Whose production of such bulk drug in relation to the total production of such bulk drug in the country is large, or (ii) who employs efficient technology in the production of such bulk drug. We have already noticed that 'net worth' is defined to mean 'the share capital of a company plus free reserve, if any'. Free reserve itself is separately defined. It is then prescribed by clause (3)- No person shall sell a bulk drug at a price exceeding the price notified under sub-paragraph 1, plus local taxes, if any payable: provided that until the price of bulk drug is so notified, the price of such bulk drug shall be the price which prevailed immediately before the commencement of this order and the manufacture of such bulk drug at a price exceeding the price which prevailed as aforesaid. This means that until the maximum sale price of an indigenously manufactured bulk drug is fixed under paragraph 3 of the 1979 Order, the price fixed under paragraph 4 of the 1970 order or the price permitted under paragraph 5 of the 1970 order was to be maximum sale price. Paragraph 3(4)(a) requires a manufacturer co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of drugs and other pharmaceutical aids used including overages, if any, and process loss thereon in accordance with such norms as may be specified by the Government from time to time by notification in the official Gazette in this behalf. C.C.'? means conversion cost worked out in accordance with such norms as may be specified by the Government from time to time by notification in the official Gazettee in this behalf. P.M. means the cost of packing material including process loss thereon worked out in accordance with such norms as may be specified by the Government from time to time by notification in the official Gazette in this behalf. P.C. means packing charges worked out in accordance with such norms as may be specified by the Government from time to time by notification in the official Gazette in this behalf. M.U. means make-up referred to in para. 11. E.D. means excise duty. Paragraph 11 explains what 'Mark-up' means. Paragraph 12 empowers the Government to fix leader prices of formulations of categories I and II specified in the third schedule. Paragraph 13 empowers the Government to fix retail price of formulations specified in category III ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce charges, total cost of sales, selling price, existing price or notional or declared prices, etc. to be furnished. A note at the end of the proforma requires the exclusion from cost certain items of expenses, such as, bonus in excess of statutory minimum, bad debts and provisions, donations and charities, loss/gain on sale of assets, brokerage and commission, expenses not recognised by income tax authorities and adjustments relating to previous years. Shri G. Ramaswamy, learned Additional Solicitor General on behalf of the Union of India, submitted that the fixation of maximum price under paragraph 3 of the Drugs (Prices Control) Order was a legislative activity and, therefore, not subject to any principle of natural justice. He urged that relevant information was required to be furnished and was indeed furnished by all the manufacturers in the prescribed form as required by paragraph 3(4) of the Drugs (Prices Control) Order. This information obtained from the various manufacturers was taken into account and a report was then obtained from the Bureau of Industrial Costs and Prices, a high-powered expert body specially constituted to undertake the study of industrial cost structur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e average cost of production of the drug manufactured by an efficient manufacturer should be taken into account and that a reasonable return on networth should be allowed and the provision for a review of the order determining the price, established that price-fixation under the Drugs (Prices Control) Order 2979 was a quasijudicial activity obliging the observance of the rules of natural justice. The suggestion of the learned counsel was that the nature of the review under paragraph 27 was so apparently quasi-judicial and that the need to know the reasons for the order sought to be reviewed was so real if the manufacturer was effectively to exercise his right to seek the quasijudicial remedy of review, that by necessary implication it became obvious that the Order fixing the maximum price must be considered to be quasijudicial and not legislative in character. The provision for enquiry in the first clause of paragraph 3 and the prescription of the matters to be taken into account in the second clause of paragraph 3 further strengthened the implication, according to the learned counsel. It was contended that in any case, whatever be the nature of the enquiry and the order contemplat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bservance of which would give rise to a cause of action to a suitor. What the order does contemplate however is 'such enquiry' by the Government 'as it thinks fit'. A provision for 'such enquiry' as it thinks fit' by a subordinate legislating body, we have explained earlier, is generally an enabling provision to facilitate the subordinate legislating body to obtain relevant information from any source and it is not intended to vest any right in any body other than the subordinate legislating body. In the present case, the enquiry contemplated by paragraph 3 of Drugs (Prices Control) Order is to be made for the purposes of fixing the maximum price at which a bulk drug may be sold, with a view to regulating its equitable distribution and making it available at a fair price. The primary object of the enquiry is to secure the bulk drug at a fair price for the benefit of the ultimate consumer an object designed to fulfil the mandate of Art. 39(b) of the Constitution. It is primarily from the consumer public's point of view that the Government is expected to make its enquiry. The need of the consumer public is to be ascertained and making the drug availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision hearing after the making of an administrative or quasi-judicial order. It is a hearing which follows a subordinate legislative activity intended to provide an opportunity to affected persons such as the manufacturers, the industry and the consumer public to bring to the notice of the subordinate legislating body the difficulties or problems experienced or likely to be experienced by them consequent on the price fixation, whereupon the Government may make appropriate orders. Any decision taken by the Government cannot be confined to the individual manufacturer seeking review but must necessarily affect all manufacturers of the bulk drug as well as the consumer public. 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 must result in fresh subordinate legislative activity. The true nature of the review provided by paragraph 27 in so far as it relates to the fixation of maximum price of bulk drugs under paragraph 3 leader ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manufacturer may require the Government to give information regarding the particulars detailed in Form No. 1 of the Fourth Schedule which have been taken into account and those which have been excluded. The manufacturer may also require to be informed the elements which were taken into account and those which were excluded in assessing the 'free reserves' entering into the calculation of 'net worth'. These particulars which he may seek from the Government are mentioned by us only by way of illustration. He may seek any other relevant information which the Government shall not unreasonably deny. That we think is the nature and scope of the review contemplated by Paragraph 27 in relation to orders made under Paragraphs 3, 12 and 13. On the question of the scope of a Review, the learned counsel for the respondents invited our attention to Vrajlal Manilal Co. v. Union of India Anr., [1964] 7 SCR 97; Shivaji Nathubhai v. Union of India Ors., [1960] 2 SCR 775; Maneka Gandhi, [1978] 2 SCR 621; Swadeshi Cotton Mills, [1981] 2 SCR 533; and Liberty Oil Mills., [1984] 3 SCR 676. We are afraid none of these cases is of any assistance to the correspondence since the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these cases have no application to a review of subordinate legislation by the subordinate legislating body at the instance of a party. We mentioned that the price fixed by the Government may be questioned on the ground that the considerations stipulated by the order as relevant were not taken into account. It may also be questioned on any ground on which a subordinate legislation may be questioned, such as, being contrary to constitutional or other statutory provisions. It may be questioned on the ground of a denial of the right guaranteed by Art. 14 if it is arbitrary, that is, if either the guidelines prescribed for the determination are arbitrary or if, even though the guidelines are not arbitrary, the guidelines are worked in an arbitrary fashion. There is no question before us that paragraph 3 prescribes any arbitrary guideline. It was, however, submitted that the guidelines were not adhered to and that facts and figures were arbitrarily assumed. We do not propose to delve into the question whether there has been any such arbitrary assumption of facts and figures. We think that if there is any grievance on that score, the proper thing for the manufacturers to do is bring it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in the High Court. He said that obsolete quantitative usages had been taken into consideration, proximate cost data had been ignored and the data relating to the year ending November, 1976 had been adopted as the basis. It was submitted that there were errors in totalling, errors in the calculation of prices of utilities, errors in the calculation of net-worth and many other similar errors. As we pointed out earlier, these are all matters which should legitimately be raised in the review application, if there is any substance in them. These are not matters for investigation in a petition under Art. 226 of the Constitution or under Art. 32 of the Constitution. Despite the pressing invitation of Shri Diwan to go into facts and figures and his elaborate submissions based on facts and figures, we have carefully and studiously refrained from making any reference to such facts and figures as we consider it outside our province to do so and we do not want to set any precedent as was supposed to have been done in Premier Automobiles though it was not so done and, therefore, needed explanation in later cases. One of the submissions of Shri Diwan was that in calculating net-worth the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which can never enter the cost of production. So long as the method prescribed and adopted by the subordinate legislating body is not arbitrary and opposed to the principal statutory provisions, it cannot be legitimately questioned. Another submission of the learned counsel relating to the norms for conversion costs, packing charges and process loss of raw materials and packing materials required to the notified for the purpose of calculating retail prices of formulations. The argument, for example, was that there should be a more scientific formula in regard to conversion cost and not, as was done, so many rupees and paise per thousand capsules or one litre of liquid. We do not agree with the submission. It is open to the subordinate legislating authority to adopt a rough and ready but otherwise not unreasonable formula rather than a needlessly intricate so-called scientific formula. We are unable to say that the subordinate legislating authority acted unreasonably in prescribing the norms in the manner it has done. While on the question on formulations, we would like to refer to the Oration of Dr. N.H. Antia at the 24th Annual Convocation of the National Academy of Medical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government and that even now no orders had been passed in several cases. Accordingly to the learned counsel, the very delay in the disposal of review applications was sufficient to vitiate the entire proceeding and scheme of price fixation. According to the learned counsel, the price of a bulk drug is dependant on many variable factors which keep changing very fast. If time is allowed to lapse whatever price is fixed, it soon becomes out of date. If review applications are not disposed of expeditiously the notifications fixing the prices must be struck down as having become obsolete. It is difficult to agree with these propositions. It is true that the price of a bulk drug is dependent on innumerable variables. But it does not follow that the notification fixing the maximum price must necessarily be struck down as obsolete by the mere passage of time. We agree that applications for review must be dealt with expeditiously and whenever they are not so dealt with, the aggrieved person may seek a mandamus from the court to direct the Government to deal with the review application within a time framework. We notice that in all these matters, the High Court granted stay of implementatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interests have in no way been taken care of. 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. It was argued by the learned counsel that the undertaking given by the parties lapsed with the disposal of the writ petition by the High Court and that it could no longer be enforced. We do not agree with this submission. Apart from the fact that an appeal is ordinarily considered to be a continuation of the original proceeding, in the present case, we notice that further orders of the Supreme Court were also in contemplation and such further orders could only be if appeals were preferred to the Supreme Court. We do not think that there was any doubt in anyone's mind that the matter would be taken up in appeal to the Supreme Court whichever way the writ petitions were decided. We are of the view that the undertakings given by the parties in the present cases were intended to and do continue to subsist. On the conclusions arrived at by us we have no doubt that the appeal must be allowed and the writ petition in the High Court dismissed. However, we think that it is necessary to give ..... X X X X Extracts X X X X X X X X Extracts X X X X
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