TMI Blog2016 (10) TMI 1337X X X X Extracts X X X X X X X X Extracts X X X X ..... emedy. HELD THAT:- The DPCO 1995 came into operation on 6th January, 1995. Ordinarily therefore the first notification under Paragraph 7 thereof ought to have been issued in July 1995, or soon thereafter. Perhaps the Masood Committee was constituted on 24th April, 1995 for this purpose and initially it was required to submit its Report on or before 30th June, 1995 but time was extended till 31st August, 1995 - Whatever be the position, the fact is that the Central Government did not notify the norms on a yearly basis for four years 1995-1996, 1996-1997, 1997-1998 and 1998-1999. We are really concerned with the default for this period. The NPPA was set up on 29th August, 1997 and the Jharwal Committee was set up on 8th October, 1998 more than two years and three years respectively after the DPCO 1995 was issued. The purpose of setting up the Jharwal Committee was to revise the norms applicable since 15th July, 1993. Pursuant to the Report of the Jharwal Committee the Central Government did issue a notification on 13th July, 1999 under Paragraph 7 of the DPCO 1995. On the issue under consideration, we are presently not concerned with the period 1999 onwards till 2004. Paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven this was advantageous to the manufacturers/formulators. We may recall that the Sankaran Committee had noted that the norms for cost of packing material were not prescribed from 1979 onward. Far from objecting to this, the drug industry had itself requested the Sankaran Committee to permit the cost of packing material to be taken on actuals. The Sankaran Committee accepted this suggestion while taking into account the inherent difficulty in prescribing any norm for cost of packing materials - The notification dated 15th July, 1993 prescribed norms only for conversion cost and packing charges. No manufacturer or formulator made any grievance or complaint regarding the failure of the Central Government to prescribe the cost of packing material as a norm. The situation has not changed at all over the years. The silence of the drug industry continued as is evident from the fact that even 15 years later a notification was issued by the Central Government on 11th August, 2004 under Paragraph 7 of the DPCO 1995 prescribing the norms for conversion cost, packing charges and process loss of raw materials (other than packing materials in conversion and packing) and process loss of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in granting any interim relief. The consequence of an interim order might be quite serious to society and consumers and might cause damage to public interest and have a long term impact. We make it clear that it is not our intention to suggest to any Court how and in what circumstances interim orders should or should not be passed but it is certainly our intention to make it known to the Courts that the time has come when it is necessary to be somewhat more circumspect while granting an interim order in matters having financial or economic implications. Various questions raised, are answered as below: Validity of Notification dated 13th July, 1999 issued by the Central Government under Paragraph 7 of the Drugs (Prices Control) Order, 1995 - the notification prescribed the norms for conversion cost, packing charges and process loss of raw materials (other than packing materials in conversion) and packing and process loss of packing materials in packaging - whether the notification was issued mechanically and without any application of mind or is it valid in law? - HELD THAT:- The notification is valid and that the notification was not issued mechanically or without any app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B. Lokur, J. 1. (a) The issues that arise in this batch of appeals are as follows: (i) Whether the notification dated 13th July, 1999 issued by the Central Government under Paragraph 7 of the Drugs (Prices Control) Order, 1995 prescribing the norms for conversion cost, packing charges and process loss of raw materials (other than packing materials in conversion) and packing and process loss of packing materials in packaging was issued mechanically and without any application of mind or is it valid in law? (ii) Whether the notifications dated 12th July, 2000, 12th July, 2001, 12th July, 2002 and 11th July, 2003 issued by the Central Government under Paragraph 7 of the Drugs (Prices Control) Order, 1995 re-notifying the norms prescribed on 13th July, 1999 were issued mechanically, without any application of mind and without re-determining the norms every year as required by the Drugs (Prices Control) Order, 1995 and are valid in law? (iii) Whether various notifications issued by the Central Government fixing the retail price or ceiling price of formulations under Paragraphs 8 and 9 (as the case may be) of the Drugs (Prices Control) Order, 1995 without determining the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4005 of 2004 is directed against the judgment and order dated 27th April, 2002 passed by the Division Bench of the High Court of Punjab Haryana at Chandigarh in C.W.P. No. 15677 of 1999 filed by M/s. Martin Harris Laboratories Ltd. 8. Three issues have been raised in this appeal. The first is whether the inclusion of the bulk drug Diosmin in the First Schedule to the DPCO 1995 is valid or not. The second is whether the ceiling price fixed by the Central Government in the notification dated 20th July, 1998 of the Diosmin formulation was in accordance with the provisions of Paragraph 7 of the DPCO 1995. The third is whether the ceiling price of the Diosmin formulation could have been fixed under Paragraph 9 of the DPCO 1995 without first fixing the maximum sale price of the bulk drug Diosmin under Paragraph 3 of the DPCO 1995. 9. By an order dated 15th September, 2016 we had declined to go into the first question. We had remanded the matter back to the High Court to reconsider the issue in the light of the decision rendered by this Court in Secretary, Ministry of Chemicals Fertilizers, Government of India v. Cipla Ltd. and Ors. (2003) 7 SCC 1. 10. As far as the secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Okasa Limited) is that small scale industries were exempted from the operation of Paragraph 8 of the DPCO 1995 (relating to the retail price of formulations) by a notification dated 2nd March, 1995. It was submitted that fixing the ceiling price of formulations under Paragraph 9 of the DPCO 1995 was a collateral attempt to bypass the effect of the exemption notification dated 2nd March, 1995 and deny its benefit to small scale industries. 17. Civil Appeal Nos. 9609-9610 of 2016 arise out of judgment and order dated 16th April, 2004 passed by the High Court of Judicature, Andhra Pradesh at Hyderabad in Writ Petitions Nos. 18507 of 1996 and 645 of 1997 filed by Dr. Reddy's Laboratories Ltd. 18. Dr. Reddy's Laboratories manufactures the bulk drug Norfloxacin and formulations from the said bulk drug. The challenge in the High Court was to a notification dated 13th December, 1996 issued under Paragraph 3 of the DPCO 1995 fixing the price of the bulk drug Norfloxacin at ₹ 2162/- per kilogram. However, prior to that on 27th December, 1995 the ceiling price of formulations from the bulk drug Norfloxacin was fixed under Paragraph 9 of the DPCO 1995. This notification w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s all costs incurred by a manufacturer from the stage of ex-factory cost to retailing and includes trade margin and margin for manufacturer and it shall not exceed one hundred per cent for indigenously manufactured scheduled formulations; E.D. means excise duty; Provided that in the case of an imported formulation, the landed cost shall form the basis for fixing its price along with such margin to cover selling and distribution expenses including interest and importer's profit which shall not exceed fifty per cent of the landed cost. Explanation.-For the purpose of this proviso, landed cost means the cost of import of formulation inclusive of customs duty and clearing charges. [Emphasis supplied] 22. A perusal of the above provision would show that for calculating the retail price of formulations, the five determining factors are material cost, conversion cost, packing material cost, packing charges and maximum allowable post-manufacturing expenses (or MAPE). During the hearing of these appeals, there was no discussion at all about determination of material cost or MAPE. It must, however, be mentioned that in one of the appeals a submission was made that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its contrast with Paragraph 7 of the DPCO 1995 with reference to determination of norms from time to time and every year can be easily seen: 6. Calculation of retail price of formulations.--The retail price of the formulation shall be calculated in accordance with the following formula, namely: R.P. = (M.C.+ C.C.+ P.M. + P.C.) x (1 + MAPE/100) + E.D. Where-- R.P. means retail price, M.C. means material cost and includes the cost of drugs and other pharmaceutical aids used including overages, if any, plus process loss thereon specified as a norm from time to time by notification in the Official Gazette in this behalf, C.C. means conversion cost worked out in accordance with established procedures of costing and may be fixed as a norm from time to time by notification in the Official Gazette in this behalf, P.M. means cost of the packing material used in the packing of concerned formulation and includes process loss, as a norm fixed from time to time by notification in the Official Gazette in this behalf, P.C. means packing charges worked out in accordance with established procedures of costing and may be fixed as a norm from time to time by noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, in certain commodities. [Emphasis supplied by us]. There is no dispute that drugs as defined in the Drugs and Cosmetics Act, 1940 is an essential commodity in view of Section 2A read with the Schedule to the Essential Commodities Act, 1955. Historical background beginning with the Sankaran Committee 29. The DPCO 1987 was issued on 26th August, 1987. Soon thereafter, a Committee called the Sankaran Committee was set up on 2nd September, 1987 the occasion being that the norms prescribed for conversion cost, packing charges and process loss of raw materials (other than packing materials in conversion and packing) and process loss of packing materials in packaging were last announced a decade ago in 1979 in accordance with the provisions of the DPCO 1979. The Sankaran Committee was set up for a quick revision of the norms and it was mandated to submit its report within three months. It is important to note that Paragraph 6 of the DPCO 1987 provided for the calculation of retail price as per a given formula. One of the factors in the formula is P.M. meaning cost of the packing material used in the packing of concerned formulation and includes process loss, as a norm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lculations of these norms are very difficult as a large number of large pack sizes are involved. It is therefore recommended that till such time the norms are worked out by BICP, and these are notified, the actuals may be allowed. (ii) The Report noted that While notifying the norms under the Drugs (Prices Control) Order, 1979 the Bureau of Industrial Costs and Prices reviewed the earlier norms by examining the information provided by about 7 of the 36 manufacturers who were asked to submit data and concluded that the norms notified in 1974 were adequate and did not call for any revision. In other words, the manufacturers/formulators did not provide the necessary information and assistance even to the BICP in its endeavour to determine the norms for conversion costs and packing charges. 33. Faced with this situation, the Sankaran Committee took the following view on the basis of available information: (a) Conversion cost: The increasing cost of production and conversion costs have led to a situation where the existing norms cover less than 50% of the actual costs. In the case of public sector companies like IDPL and HAL they cover less than 30% of the actual costs. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being guided by these ceilings. However, these have not been notified as norms though statutorily required. It is obvious that calculation of norms are very difficult as large number of pack sizes and large number of dosage forms of different material are in the market. The Committee recommends that the BICP be requested to up-date the ceilings and recommend to the Department of Chemicals and Petrochemicals that these may be notified as norms. Till such time as these are communicated by the BICP, the actuals may be allowed. It is recommended that while the norms are notified this provision that actuals for packing material costs are allowed till further norms are notified, be included. This will provide for meeting the statutory requirements also. While allowing the actuals it will be necessary to insist on a certificate from the State Drug Controller that a particular dosage form is being packed by a particular material. [Emphasis supplied by us]. 35. Paragraph 16 of the Report is relevant for appreciating the strategy for implementation of the recommendations made by the Sankaran Committee and this reads as follows: 16. The newly recommended norms are in Annexure VIII. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recommended an increase in conversion cost at 25% in the first year (over and above an immediate increase of 50%) and at 25% in the second year and that recommendation was accepted by the Central Government, but it was not implemented. Apparently realizing this, in exercise of powers conferred by Paragraph 6 of the DPCO 1987, a notification dated 15th July, 1993 was issued. By this notification, the norms for conversion cost and for packing charges were increased by 50% in one stroke. The increase in the norms for conversion cost as mentioned in the notification dated 15th July, 1993 tallies with the recommendations made by the Sankaran Committee in Annexure VIII of its Report. However, no change was effected in the norms for process loss of raw materials (other than packing materials in conversion and packing) and process loss of packing materials in packaging which continued to be as per actuals. 39. At this stage it may be mentioned that pursuant to the study or exercise conducted by the BICP, the Central Government approved the ceiling price of packing material cost and made it applicable from 7th July, 1994. However, this was not notified in the Official Gazette. Drug P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OPPI), All India Small Drug Manufacturers Association (AISDMA) and All India Small Scale Pharmaceutical Manufacturers Association (AISSPMA). In that meeting the industry associations made the following demands: a) Ad-hoc relief based on inflation/increase in consumer price index since 1987 should be given. b) Associations felt that a simplified questionnaire would meet the requirements to give maximum benefit in fastest time and no detailed exercise was required. c) It was suggested that Cost Audit Reports may be made use of for broad categories of dosage form and escalations be worked out over the existing norms. d) Additional costs on account of GMP [Good Manufacturing Practices] should be given. 45. Prior to the above meeting, the Masood Committee had prepared a questionnaire for eliciting information from various companies for the purposes of carrying out its duties. This questionnaire (referred to in (b) above) was discussed with the industry associations on 31st May, 1995 when they requested for time to examine it and assured the Masood Committee that their suggestions on the questionnaire would be submitted latest by 8th June, 1995. However, no suggestions wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts as given in the CARs have not been allocated in accordance with the established Costing procedures but in an arbitrary manner was not justified. 48. Notwithstanding the (disputed) discrepancies, the data available in the CARs was analyzed by the Masood Committee to determine whether there was an increase in the conversion cost and packing charges keeping in mind that the Sankaran Committee had based its conclusions on data available in 1985-86/1986-87. The analysis made by the Masood Committee gave a mixed picture of actual costs being equal, higher or lower than the existing norms for conversion cost with respect to various dosage forms. The Masood Committee came to a similar conclusion in the cost of packing charges also. 49. It was then concluded that if the cost allocation in the CARs was as per established costing procedures and the norms recommended by the Sankaran Committee were on a realistic basis, inflation during the period 1986-87 to 1994-95 and increase in energy and other costs should have resulted in the actual conversion cost being higher than the existing norms. Accordingly, the Masood Committee was of the view that the data available in the CARs could a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed CC PC for 1986-87 in July 1993 when the third and final increase was allowed. In other words, the industry should have suffered losses on a continuing basis at increasing levels i.e. years subsequent to 1986-87, on two counts (a) assessed CC PC for 1986-87 was not allowed to be absorbed fully and (b) due to impact of general inflation subsequent to 1986-87. (ii) The Committee has also examined the actual CC PC as given in the Cost Audit Reports of six companies with a view to develop norms for the same as suggested by Industry Associations. Analysis of the data did not reveal any logical correlation of cost elements over a large range of products. Discrepancies and anomalies observed in the data have already been described in Chapter 3. (iii) Non-response to the questionnaire by industry and their insistence that no detailed exercise should be undertaken by the Committee further lends support to the conclusion arrived at by the Committee that the possible cushion in the existing norms and in other inputs more than offsets the inflation during the period 1986-87 to 1994-95. The Committee, therefore, recommends that no further escalation should be given till replies t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k. Apart from a criticism of the Report, the submission made by learned Counsel for Cipla was that all the information required by the Masood Committee was available in the CARs which were with some Ministry or the other of the Central Government, if not with the Ministry of Industry or the Department of Company Affairs. All the CARs could easily be requisitioned by the Masood Committee to fix the norms and this was possible even if the industry did not co-operate with the Masood Committee, more particularly since price fixing is a legislative exercise required to be carried out independently. 57. However, the Masood Committee determined the norms for cost of packing material (without process loss) and these norms were mentioned in Annexure 5.3 of the Report of the Masood Committee' but the Central Government decided not to prescribe the norms for cost of packing material and accepted the view of the Masood Committee that prescribing the norms for cost of packing material in isolation (and without process loss) would not serve any purpose. Jharwal Committee 58. After the Report of the Masood Committee was submitted on 31st August, 1995 it appears that there was little ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommittee and the Masood Committee) sometime in October 1998 and circulated it to the industry so that suggestions could be made for appropriate modifications in the questionnaire. The Jharwal Committee met on 28th November, 1998 and finalized the questionnaire in the absence of an adequate response from the industry. In the next meeting held on 12th December, 1998 the industry expressed its inability to furnish the data in respect of the installed capacity of the companies. 62. Be that as it may, the information required in terms of the questionnaire prepared by the Jharwal Committee was not at all forthcoming from the industry. Faced with these difficulties and in the absence of cooperation from the industry, the Jharwal Committee considered the suggestion of the Department of Chemicals and Petrochemicals for a partial increase in the existing norms of conversion cost and packing charges based on the inflation factors and till a full-fledged cost study is finalized. Acting upon this suggestion the Jharwal Committee considered several factors as mentioned in its Report as well as the wholesale price index and other relevant factors and felt that it would be adequate and reasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99 under Paragraph 7 of the DPCO 1995. Through this notification fresh norms were prescribed for conversion cost, packing charges and process loss of raw materials (other than packing materials in conversion) and packing and process loss of packing materials in packaging for the purposes of Paragraph 7 of the DPCO 1995. Norms for cost of packing material were not prescribed, apparently since this was permitted on actuals. Review of the three Reports 67. A review of the Report of the Sankaran Committee, the Report of the Masood Committee and the Report of the Jharwal Committee bring out the following salient points: 1. The drug industry was unwilling to extend its full cooperation in furnishing data required by the Central Government for prescribing the norms as required by the DPCO 1987 and the DPCO 1995. One of the possible explanations for this reluctance put forth by learned Counsel for Cipla (it was clarified that Cipla was not a member of any drug industry association after a particular point of time) that the members of the drug industry might not have been willing to part with confidential information which could be used by competitors. 2. Faced with the reluctan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h reference to the norms for the cost of packing material through a letter dated 6th October, 1999 issued by the NPPA to IDMA and similar letters to other associations. What is on record before us is the reply by OPPI to the NPPA of 11th January, 2000 to the effect that a meaningful response could be given if the existing norms for packing material costs were made available and some clarity brought regarding the basis for the ceiling fixed. This letter was viewed by the NPPA as yet another delaying tactic in providing the requisite information. Apparently realizing this, OPPI addressed a letter to the NPPA on 9th March, 2000 to the effect that an independent professional consultant had been assigned the task to facilitate expeditious compilation of the requisite data to assist in the development of norms for cost for packing materials. Although it is not clear from the record, but it does appear that the data compiled (if any) by the independent professional consultant engaged by OPPI was not furnished to the NPPA. 70. Quite independently, a dialogue was initiated by the NPPA with the drug industry with regard to fixing the norms for conversion cost and for packing charges. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication dated 11th July, 2003. We do not think it necessary to detail the correspondence between the Central Government and the drug industry except to say that the non-cooperation and dilly-dallying by the industry in providing necessary information and data continued throughout this period. 76. There were, however, three significant and distinguishing features during this period. The first was that the Central Government decided to take the services of and involve the Cost Accounts Branch of the Department of Expenditure in the Ministry of Finance to undertake a study for the development of norms for conversion cost, packing charges, and process loss. However, nothing substantive came out of this exercise by the Cost Accounts Branch. The second significant development was an unambiguous decision of the drug industry that the information required by the NPPA or the Central Government was already available in the Cost Audit Reports (CARs) of the various companies. The third was the clear view of the drug industry to not cooperate at all with the Central Government in the exercise of reviewing the norms for conversion cost, packing charges and process loss. 77. The Indian Pha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orms based on the actual cost data/information available with the formulation companies. 81. It will be seen from the above that as far as the drug industry was concerned, the CARs could form the basis for prescribing the norms as required by Paragraph 7 of the DPCO 1995. On the other hand, the Masood Committee had concluded that the data provided through the CARs was not entirely reliable. That apart, to obtain an overall picture of the ground realities, the NPPA, the Central Government and the Cost Accounts Branch felt that the information called for through the questionnaires would be more comprehensive and beneficial rather than the CARs of a handful of manufacturers/formulators. 82. On the basis of the above material, the submission of the learned Solicitor General was that the drug industry did not extend the necessary cooperation expected of it, that the notifications issued by the Central Government prescribing the norms for conversion cost, packing charges and process loss were not mechanically issued but were issued after due application of mind to the available material and that the decisions taken by the Central Government were subject to revision under the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and subsequent notifications were issued without any application of mind. It was in this context that it had become necessary to make a detailed reference to the Reports of the Sankaran Committee, the Masood Committee, the Jharwal Committee, the file notings and correspondence which were the materials before the Central Government and which led to the issuance of the notifications prescribing the norms for conversion cost, packing charges and process loss. 86. Paragraph 7 of the DPCO 1995 consists of two parts-prescribing the norms and applying those prescribed norms to the formula for arriving at the retail price of a formulation. In the first instance, we are concerned with prescribing the norms under Paragraph 7 of the DPCO 1995 on the basis of the recommendations of the Masood Committee and the Jharwal Committee since it was contended that there was no application of mind in doing so. It may be mentioned that there is no challenge to the norms prescribed as such on the ground of arbitrariness or being ultra vires the DPCO 1995 or the Essential Commodities Act, 1955. What is presently questioned is only the application of mind and the soundness of the materials on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recommended by the Sankaran Committee and the Report of the Jharwal Committee was the basis for revising the norms as notified on 13th July, 1999. These Reports were the antecedent material available with the Central Government for the purposes of Paragraph 7 of the DPCO 1995. Can this antecedent material be subject to judicial review or judicial scrutiny and if so to what extent? 90. The criteria for price fixing can be statutory or non-statutory (such as a Report). This distinction was brought out in Rayalaseema Paper Mills Ltd. v. Government of A.P. (2003) 1 SCC 341. In that decision, a committee of officials was appointed to consider the factors relating to fixing the rates of royalty on the forest produce to be supplied to wood-based industries on a sustained basis, and to make recommendations to the Government. The committee made its recommendations which were accepted by the State Government and an appropriate G.O. Ms was issued. The result of the G.O. Ms was that the royalty for bamboo went up considerably and continued to rise every year. The G.O. Ms was then challenged in a writ petition. 91. The submission made by the Appellants in that case was that even though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the requirements of the mills alone. [Emphasis supplied]. 93. In these appeals, we too are presently concerned with a stage anterior to actual price fixation namely recommending and prescribing the norms that would eventually form the basis for fixing the retail price and ceiling price of formulations. The view expressed in Rayalaseema Paper Mills would, in our opinion, apply to the Reports of the Masood Committee and the Jharwal Committee set up by the Central Government for recommending the norms for the purposes of Paragraph 7 of the DPCO 1995. The Reports were antecedent materials, non-statutory and recommendatory and could have been rejected by the Central Government. The Masood Committee did not (and perhaps could not) recommend any norms for conversion cost, packing charges and process loss, except for cost of packing material (without process loss). The Masood Committee was alive to the statutory requirement of prescribing the norms on a yearly basis and therefore referred to it. 94. However, as far as the Report of the Jharwal Committee is concerned, the Central Government accepted and implemented it by issuing a notification on 13th July, 1999 under Paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if not conclusive. Insofar as we are concerned, two expert Committees made their recommendations. These recommendations were then examined and considered by the Central Government and on the basis of the expert conclusions arrived at, the norms were prescribed by a notification dated 13th July, 1999 issued under Paragraph 7 of the DPCO 1995. Under the circumstances, the question of judicial scrutiny of the Reports of the Masood Committee and the Jharwal Committee and the acceptance of their recommendations by the Central Government is not only limited, but in this case it does not arise. It cannot be said that the notification dated 13th July, 1999 was based on no material or was issued without any application of mind. Learned Counsel for Cipla may disagree with the contents of the materials, but cannot ignore their existence or that they were considered by the Central Government. 98. Fixing the price of any commodity is not only difficult but also tricky. There is material to be considered, a bundle of factors to be considered and appropriate weight is to be given to the material and the factors. This is not easy to decide and there will always be some criticism with regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as already available in the CAR of each company. Assuming again that the required information could be extracted by each Committee from the CAR, it could more easily be extracted by each company from its own CAR and provided to the Masood Committee and the Jharwal Committee. Under these circumstances, it is inexplicable why the drug industry declined to fill up the questionnaires sent to their member companies from time to time. There is certainly more to it than meets the eye. 102. It is true, as contended by learned Counsel for Cipla that no manufacturer/formulator is under an obligation to furnish whatever information is required by the Central Government including information that might be confidential. But that does not mean that absolutely no information should be supplied by any company or incomplete information should be supplied by a very few of them. It would certainly be more appropriate for each company to have responded to the questionnaires sent with a communication that some particular information is not being furnished for reasons of confidentiality. But no such courtesy was extended. While there may not be a statutory obligation on each manufacturer/formulator t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. In paragraph 4 of the Report, it was noted that the requisite information was not furnished, even after a substantial lapse of time and a reminder. This observation was reiterated in paragraph 44 of the Report and it was held that in view of the refusal of the manufacturers/formulators to furnish the detailed information, the Central Government was well within its jurisdiction to resort to Paragraph 11 of the DPCO 1995 and fix the price of the formulation on the basis of information available. 105. Similarly, in Secretary, Ministry of Chemicals and Fertilizers v. Cipla Ltd. (2003) 7 SCC 1 it was observed by this Court in paragraph 8.4 of the Report that bulk drug producers did not disclose necessary information to the Central Government, despite a request having been made in that regard and that there was no good reason why the relevant information should be withheld. It was observed: Sales of bulk drugs effected during the year by bulk drug producers including some of the Respondents herein would have furnished the best indicia of domestic sale turnover of bulk drug. But, those details were not disclosed. Secondly, if the bulk drug produced was consumed by any bulk drug p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial, or, whether it is a determination of law or fact, the judgment of the expert body, entrusted with power, is generally treated as final and the judicial function is exhausted when it is found to have warrant in the record and a rational basis in law: See Rochester Tel. Corporation v. United States 307 US 125 (1939) : 83 L ed 1147. See also Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation (1948) 1 KB 223 : (1947) 1 All ER 498. [Emphasis supplied] This view was reaffirmed in paragraph 58 of the Report in the following words: Price fixation is not within the province of the courts. Judicial function in respect of such matters is exhausted when there is found to be a rational basis for the conclusions reached by the concerned authority. As stated by Justice Cardozo in Mississippi Valley Barge Line Co. v. United States of America 292 US 282, 286-287 : 78 L ed 1260, 1265. The structure of a rate Schedule calls in peculiar measure for the use of that enlightened judgment which the Commission by training and experience is qualified to form.... It is not the province of a court to absorb this function to itself.... The judicial function is exhaust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment to notify the norms every year and that responsibility could not be effectively discharged without the cooperation of the drug industry. Therefore the Central Government, faced with an extra-ordinary situation and a stalemate putting the consumers of an essential commodity at the mercy of the drug industry, had no option but to re-notify the existing norms in public interest on the basis of the available material. 111. We have adverted to the issues that confronted the Central Government during this period, namely, the unambiguous decision of the drug industry not to extend any cooperation to the Central Government in arriving at appropriate norms for the purposes of Paragraph 7 of the DPCO 1995. The views of the Indian Pharmaceutical Association and the IDMA have already been referred to. The insistence of the drug industry to work out the norms on the basis of the CARs was another stumbling block staring at the face of the Central Government. The Cost Accounts Branch of the Department of Expenditure in the Ministry of Finance, a neutral body in that sense, had clearly expressed the view that the norms could not be effectively determined only on the basis of the CARs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criteria found in a report or other material. 114. The norms fixed by the Central Government are of general application, they are not intended to benefit or harm any particular manufacturer or formulator and indeed no manufacturer or formulator is required to be heard (or was heard) in the determination, they are notified in the Official Gazette for the information of the general public and in arriving at the norms the general attributes of legislative activity are attended to by the Central Government for the benefit of the consumers. The notification of the norms therefore has the character of legislative activity. 115. No submission was made before us to the effect that the formula given in Paragraph 7 of the DPCO 1995 was not applied proprio vigore by the Central Government. The statutory criterion for price fixing is the formula given in Paragraph 7 of the DPCO 1995. Whether this formula has been operated as it should be is certainly subject to judicial review. Therefore, while operating the formula, if the Central Government did not take conversion cost into consideration (for example) or took into consideration some factor not in the formula then, the Court could cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed under sub-paragraph (1), shall make an application to the Government in Form III or Form IV, as the case may be, and the Government shall after making such enquiry, as it deems fit within, a period of two months from the date of receipt of the complete information, fix a revised price for such formulation or reject the application for revision for reasons to be recorded in writing. (5) Notwithstanding anything contained in the foregoing sub-paragraphs the retail price of a scheduled formulation, of a manufacturer shall, until the retail price thereof is fixed under the provisions of this Order, be the price which prevailed immediately before the commencement of this Order, and the manufacturer of such formulation shall not sell the formulation at a price exceeding the price prevailing immediately before the commencement of this Order. (6) No manufacturer or importer shall market a new pack, if not covered under sub-paragraph 3 of para 9, or a new formulation or a new dosage form of his existing scheduled formulation without obtaining the prior approval of its price from the Government. (7) No person shall sell or dispose of any imported scheduled formulation without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue under consideration, we are presently not concerned with the period 1999 onwards till 2004. 120. Paragraph 7 of the DPCO 1995 gives the formula for arriving at the retail price of a formulation. The application of the formula is undoubtedly mandatory and the Central Government cannot contend that the retail price of a formulation can be fixed de hors the formula. The question is whether the norms mentioned in Paragraph 7 of the DPCO 1995 are required to be prescribed every year even if there is no perceived qualitative or quantitative change in them. In other words, is the prescription of norms every year mandatory even though circumstances do not warrant any such prescription and what is the consequence if the Central Government does not prescribe the norms every year - is it fatal to the notifications issued under Paragraphs 8 and 9 of the DPCO 1995 whereby the retail price and ceiling price of formulations was fixed? 121. The purpose of determining and prescribing the norms every year is limited to the requirement of fixing the retail price of formulations in terms of the formula given in Paragraph 7 of the DPCO 1995. The Central Government set up the Masood Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the basis of the norms prescribed under the DPCO 1987. Therefore, we are of opinion that under these circumstances, the bona fides of the Central Government in not prescribing the norms every year certainly cannot be doubted. 127. That apart, the provisions of Paragraph 8(5) and Paragraph 27 of the DPCO 1995 come to the aid of the Central Government and these provisions enabled the continuation of the norms prescribed under Paragraph 6 of the DPCO 1987 and saved the notifications issued under the provisions of Paragraphs 8 and 9 of the DPCO 1995. This 'arrangement' certainly could not have carried on indefinitely, but the recalcitrance of the drug industry pushed the Central Government into a corner leaving it with little option but to continue the 'arrangement' till an alternative was found through an in-depth study. This is perhaps where the Central Government erred. It should have set up the NPPA soon after announcing the new Drug Policy in 1994 and it should have enacted a legislation constituting the National Drug Authority in terms of the Drug Policy, 1994. Had these steps been taken, the Central Government would not have to face litigation in differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... every year under Paragraph 7 of the DPCO just for the sake of it. What consumer interest would an annual change in retail price serve in the context of over 2000 formulations? What has to be seen by the Central Government, in the larger context, is whether the drug industry is losing out in any manner and whether the consumers of formulations are being put to any discomfort. A fine balance has to be struck and if the Central Government has been successful in doing that, as it appears, then carrying out an annual ceremonial procedure or annual academic exercise of determining and prescribing the norms under Paragraph 7 of the DPCO 1995 regardless of whether there is any necessity to do so is not mandatory. 130. The Central Government cannot be compelled to perform a legislative activity or legislative exercise that is of no consequence and is perhaps ritualistic. We are of opinion that while the formula given in Paragraph 7 of the DPCO 1995 must be mandatorily adhered to for fixing the retail price of a formulation, the requirement of prescribing the norms every year is discretionary and would depend upon the exigencies of the situation - it might be every year or less frequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on cost and packing charges. No manufacturer or formulator made any grievance or complaint regarding the failure of the Central Government to prescribe the cost of packing material as a norm. 134. The situation has not changed at all over the years. The silence of the drug industry continued as is evident from the fact that even 15 years later a notification was issued by the Central Government on 11th August, 2004 under Paragraph 7 of the DPCO 1995 prescribing the norms for conversion cost, packing charges and process loss of raw materials (other than packing materials in conversion and packing) and process loss of packing materials in packaging - but not for cost of packing material as a norm. Despite this, we were told by learned Counsel appearing for the parties that there has been no dispute about price fixation since 2004 due to the absence of a norm for cost of material. 135. In other words, it does appear to us that the drug industry was content with being allowed to take the cost of packing material on actuals rather than insisting on the Central Government issuing a notification prescribing the norms for cost of packing material. We believe that in fact there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or more drugs, one of which is not a scheduled drug. In that event, if the contention of learned Counsel is accepted then it would mean that the retail price or the ceiling price of that formulation cannot be fixed. This is surely not the intention of the DPCO 1995 nor is it a possible manner of reading the DPCO 1995. If the DPCO 1995 were to be read in the suggested manner, then every drug would have to be included in the First Schedule to the DPCO 1995 as a pre-condition to fixing the retail price or ceiling price of a formulation which contains that drug. This would be doing utmost violence to the plain provisions of the DPCO 1995 and for this simple reason we are unable to accept the submission of learned Counsel. The learned Counsel has unfortunately overlooked that a formulation can contain one or more bulk drugs including a bulk drug not included in the First Schedule to the DPCO 1995. 139. It has also been argued before us by learned Counsel representing a small scale industry that the ceiling price of formulations fixed under Paragraph 9 of the DPCO 1995 denied the benefit of an exemption notification dated 2nd March, 1995 available to small scale industries. We are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 1905 AC 426, 430 : 93 LT 143, Barium Chemicals Ltd. v. Company Law Board 1966 Supp SCR 311 and State of U.P. v. Renusagar Power Co. (1988) 4 SCC 59 the Constitution Bench observed in Shri Sitaram Sugar Company Ltd. that A repository of power acts ultra vires either when he acts in excess of his power in the narrow sense or when he abuses his power by acting in bad faith or for an inadmissible purpose or on irrelevant grounds or without regard to relevant considerations or with gross unreasonableness. It was then concluded in paragraph 52 of the Report: The true position, therefore, is that any act of the repository of power, whether legislative or administrative or quasi-judicial, is open to challenge if it is in conflict with the Constitution or the governing Act or the general principles of the law of the land or it is so arbitrary or unreasonable that no fair minded authority could ever have made it. 142. To this we may add that the action of a repository of power is also amenable to judicial review if it is contrary to or violates the mandatory requirement of a subordinate legislation. Therefore, if the Central Government does not adhere to the formula given in Paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm for packing material cost is concerned, sub-paragraph (c) provides an option to the applicant - either the information mentioned in paragraph 15 may be provided or the norms may be provided. Paragraph 15 requires the applicant to provide information pertaining to the pack, batch size (tablets/gms etc.), name of the packing material, rate per unit, quantity required per batch and value of packing material/batch Nos. /kgs etc. (in rupees). Therefore, even if the norm for cost of packing material is not prescribed, the applicant can provide the requisite information (based on actuals) for the purposes of making an effective application for revision of the price of a scheduled formulation. Incidentally, the Form also confirms that no manufacturer or formulator is placed at any disadvantage if the norm for packing material cost is not prescribed under Paragraph 7 of the DPCO 1995 but actuals are allowed. 146. The efficacy of the alternative remedy provided in the DPCO was the subject matter of consideration in Cynamide India Ltd. The contention urged therein was that for the purposes of price fixing, facts and figures were arbitrarily assumed by the Central Government. Rejecting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sociation and had eventually approached the Allahabad High Court for relief resulting in the impugned judgment and order dated 3rd March, 2004. It was submitted that since Cipla had approached several constitutional Courts for relief, the proceedings initiated in the Allahabad High Court clearly amount to forum shopping. 149. We are not at all in agreement with the learned Solicitor General. Forum shopping takes several hues and shades and Cipla's petitions do not fall under any category of forum shopping. 150. A classic example of forum shopping is when a litigant approaches one Court for relief but does not get the desired relief and then approaches another Court for the same relief. This occurred in Rajiv Bhatia v. Govt. of NCT of Delhi and Ors. (1999) 8 SCC 525. The Respondent-mother of a young child had filed a petition for a writ of habeas corpus in the Rajasthan High Court and apparently did not get the required relief from that Court. She then filed a petition in the Delhi High Court also for a writ of habeas corpus and obtained the necessary relief. Notwithstanding this, this Court did not interfere with the order passed by the Delhi High Court for the reason tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it and consequently evade the law laid down by the Bombay High Court. It was said that this could not be allowed and circumstances such as this would lead to some sort of judicial anarchy. 154. Yet another form of forum shopping was noticed in Jagmohan Bahl and another v. State (NCT of Delhi) and Anr. (2014) 16 SCC 501 wherein it was held that successive bail applications filed by a litigant ought to be heard by the same learned judge, otherwise an unscrupulous litigant would go on filing bail applications before different judges until a favourable order is obtained. Unless this practice was nipped in the bud, it would encourage unscrupulous litigants and encourage them to entertain the idea that they can indulge in forum shopping, which has no sanction in law and certainly no sanctity. 155. Another category of forum shopping is approaching different Courts for the same relief by making a minor change in the prayer Clause of the petition. In Udyami Evam Khadi Gramodyog Welfare Sanstha and Anr. v. State of Uttar Pradesh and Ors. (2008) 1 SCC 560 it was noticed by this Court that four writ applications were filed by a litigant and although the prayers were apparently different, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Cipla that it had already filed a writ petition in the Bombay High Court on 9th April, 1999 to the effect that Salbutamol be exempted from price control under the DPCO 1995. 162. As mentioned above, on 9th April, 1999 Cipla had filed a writ petition being W.P. No. 1749 of 1999 in the Bombay High Court. The challenge therein was to the inclusion of bulk drugs Salbutamol and Theophylline in the First Schedule of DPCO 1995. 163. Cipla also filed Writ Petition No. 1974 of 2000 in the Bombay High Court on 22nd September, 2000 seeking exclusion of the bulk drug Ciprofloxacin from the ambit of price control under the DPCO 1995. It was contended that it should be excluded from the First Schedule of the DPCO 1995. 164. Cipla filed a third writ petition in the Bombay High Court being W.P. No. 2019 of 2000. This was filed on 28th September, 2000 and the challenge was to the inclusion of the bulk drug Norfloxacin within the ambit of price control under the DPCO 1995. 165. Cipla also filed writ petitions in the Karnataka High Court being W.P. Nos. 33989-34011 of 2000. In these writ petitions, several notifications issued under Paragraph 8 and Paragraph 9 of the DPCO 1995 as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l with the material as a court of first instance. Under such circumstances this Court does not have the benefit of the opinion of the High Court while dealing with an appeal. All in all therefore, for the better adjudication of disputes and for the convenience of all concerned, it would be more appropriate for the Union of India, as indeed for all litigants to place on record all the material before the court of first instance, whether it is a district court or a High Court. We need say no more on this subject. 169. Secondly, the learned Solicitor General specifically and repeatedly requested us to comment on the grant of interim orders by the High Courts in matters concerning economic issues and particularly in matters pertaining to the sale of formulations at the retail price or ceiling price fixed by the Central Government through notifications issued under the DPCO. Certain interim orders were brought to our notice restraining coercive action against a manufacturer/formulator when a price notification was under challenge. It is true that such an interim order could have a huge impact on society. 170. In Cynamide India this Court expressed the view that an interim order sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same period the production of formulations is in the region of ₹ 6900 crores. In other words, not only is the drug industry in the country extremely large with heavy financial stakes but there is lot at stake in it not only for the industry but also for the consumers. For this reason, the Courts have to extremely cautious in interfering in any manner whatsoever with the working of the drug industry. Any interference by the Courts would have wide ranging repercussions not only in commercial terms but also for the people of the country. Conclusion 173. Our answer to the questions identified are as follows: a. Whether the notification dated 13th July, 1999 issued by the Central Government under Paragraph 7 of the Drugs (Prices Control) Order, 1995 prescribing the norms for conversion cost, packing charges and process loss of raw materials (other than packing materials in conversion) and packing and process loss of packing materials in packaging was issued mechanically and without any application of mind or is it valid in law? Our answer to this is that the notification is valid and that the notification was not issued mechanically or without any application of mind ..... X X X X Extracts X X X X X X X X Extracts X X X X
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