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Sunday, October 23, 2016

Drugs (Prices Control) Order, 1995= there are about 250 large units and about 8000 small scale units in operation. These units produce about 350 bulk drugs, and as we have mentioned above more than 2000 formulations. The Drug Policy, 1994 also mentions that the production of bulk drugs in 1993-94 is in the region of Rs.1320 crores and for the same period the production of formulations is in the region of Rs. 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.- 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. 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 they valid in law? Our answer is that the notifications are valid and were not issued mechanically or without any application of mind and that it was not necessary to re-determine the norms every year. 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 norm for cost of packing material as required by Paragraph 7 of the Drugs (Prices Control) Order, 1995 are valid in law? Our answer is in the affirmative. Whether fixing the retail price of a formulation under Paragraph 8 of the Drugs (Prices Control) Order, 1995 without first fixing the sale price of a bulk drug under Paragraph 3 of the Drugs (Prices Control) Order, 1995 utilized in the manufacture of a formulation is valid in law? Our answer is in the affirmative. - 2016 Oct. http://judis.nic.in/supremecourt/imgst.aspx?filename=44262

                                                                  REPORTABLE


                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 329 OF 2005


UNION OF INDIA & ORS.                                    .…APPELLANTS
  VERSUS

M/S. CIPLA LTD. & ANR.                                   .…RESPONDENTS
                                    WITH

                        CIVIL APPEAL NO. 4005 OF 2004

UNION OF INDIA & ORS.                                  ….APPELLANTS
                                   VERSUS

M/S. MARTIN & HARRIS LABORATORIES LTD. & ANR.
….RESPONDENTS

                                    WITH

                     CIVIL APPEAL NOS.9609-9610 OF 2016

DR.REDDY’S LABORATORIES LTD.                            ….APPELLANT

                                   VERSUS

SECRETARY, GOVT. OF INDIA & ANR.                        …RESPONDENTS


                                    WITH

                        CIVIL APPEAL NO.9585 OF 2016

UNION OF INDIA & ANR.                                   …APPELLANTS
                                   VERSUS

ISHAAN LABS PVT. LTD. & ANR.                                  …RESPONDENTS

                                    WITH

                        CIVIL APPEAL NO.9586 OF 2016

UNION OF INDIA & ANR.                                    …APPELLANTS
                                   VERSUS

M/S REMIDEX PHARMACEUTICALS PVT. LTD.                   …RESPONDENTS
& ANR.
                                     AND

                     CIVIL APPEAL NOS.9561-9584 OF 2016

UNION OF INDIA & ANR. ETC.ETC.
…APPELLANTS
                                   VERSUS

M/S. JOHNSON & SMITH CO. & ANR. ETC.ETC.                       …RESPONDENTS


                               J U D G M E N T

Madan B. Lokur, J.

      The issues that arise in this batch of appeals are as follows:

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?

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?

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 norm for cost of packing material as required  by  Paragraph
7 of the Drugs (Prices Control) Order, 1995 are valid in law?

Whether fixing the retail price of a formulation under Paragraph  8  of  the
    Drugs (Prices Control) Order, 1995 without first fixing the  sale  price
of a bulk drug under Paragraph 3 of the Drugs (Prices Control)  Order,  1995
utilized in the manufacture of a formulation is valid in law?
2.    We are primarily concerned with  the  Drugs  (Prices  Control)  Order,
1995 (the DPCO 1995) and for  historical  reasons  with  the  Drugs  (Prices
Control) Order, 1970 (the DPCO 1970),  the  Drugs  (Prices  Control)  Order,
1979 (the DPCO 1979) and the Drugs (Prices Control) Order,  1987  (the  DPCO
1987).   All these Orders were issued by the Central Government in  exercise
of powers conferred by Section 3 of the Essential Commodities Act, 1955.
The appeals before us
3.    The principal appeal before us and in which  the  leading  submissions
were made is Civil Appeal No. 329 of 2005 filed against Cipla.  This  appeal
is directed against the judgment and order dated 3rd March, 2004  passed  in
Writ Petition (C) No.41214 of 2003 by the Division Bench  of  the  Allahabad
High Court.
4.    The challenge in the writ petition was to notifications issued by  the
Central Government on 12th July, 2000, 12th July, 2001, 12th July, 2002  and
11th July, 2003 re-notifying the  norms  prescribed  by  notification  dated
13th July, 1999 issued under Paragraph 7 of the DPCO 1995 on  the  basis  of
which the retail price of formulations is fixed under  Paragraph  8  of  the
DPCO 1995. It was held by the  High  Court  that  these  notifications  were
issued mechanically and without any application of mind.
5.    The consequence of the decision of the Allahabad High  Court  is  that
about 40  notifications  fixing  the  retail  price  and  ceiling  price  of
formulations have been invalidated.
6.    The High Court also quashed the show cause notice dated  16th  August,
2003 issued by the Inspector of Drugs in Varanasi alleging  that  Cipla  had
charged higher retail prices than those notified by  various  notifications.
In view of this  allegation,  the  Inspector  of  Drugs  required  Cipla  to
clarify whether it had any order from the  National  Pharmaceutical  Pricing
Authority exempting it from compliance with the price notifications  and  to
give the quantities of the formulations sold during  the  period  1995  till
date.
7.    Civil Appeal No. 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 & Others.[1]
10.   As far as the second question is  concerned,  it  is  really  somewhat
similar to the principal issue raised by Cipla, while the third question  is
quite independent.
11.   Civil Appeal No. 9585 of 2016 filed by the Union of India  arises  out
of  judgment and order dated 6th August, 2012 passed by the  Division  Bench
of the High Court of Karnataka at Bangalore allowing Writ Petition (C)   No.
6585 of 2004 filed by Ishaan Labs Pvt. Ltd. & another.
12.   The first issue raised in this appeal pertains to the validity of  the
notification dated 11th July, 2003 issued  by  the  Central  Government  re-
notifying the norms for conversion cost, packing and  process  loss  earlier
prescribed by the notification dated 13th July, 1999.  In this context,  the
contention of Ishaan Labs is that the notification  dated  11th  July,  2003
was  issued  by  the  Central  Government  mechanically  and   without   any
application of mind and that it was rightly quashed by the High Court.
13.   The second issue is regarding the validity of the  notification  dated
3rd September, 2003 fixing  the  ceiling  price  of  Glipizide  formulations
under Paragraph 9 of the DPCO 1995.  This  is  consequential  to  the  first
issue. The contention of Ishaan Labs is that the requirements  of  Paragraph
7 of the DPCO 1995 were not adhered  to  and,  therefore,  the  notification
dated 3rd September, 2003 is liable to be struck down.
14.   Civil Appeal No. 9586 of 2016 and Civil Appeal Nos. 9561-9584 of  2016
arise out of a common judgment and order dated 30th October, 2012 passed  by
the Division Bench of the High Court of Karnataka at Bangalore  in  a  batch
of Writ  Appeals  and  Writ  Petitions  including  those  filed  by  Remidex
Pharmaceuticals Pvt. Ltd.  and  Johnson  &  Smith  Co.  &  Another.  By  the
impugned judgment  and  order,  the  High  Court  effectively  followed  its
earlier decision dated 6th August, 2012 in W. P. No. 6585 of 2004  filed  by
Ishaan Labs Pvt. Ltd.
15.   The High Court dealt with and struck  down  the  validity  of  several
notifications fixing the ceiling price of formulations under Paragraph 9  of
the DPCO 1995. These notifications were struck down because they were  based
on notifications issued under Paragraph 7 of the DPCO  1995  which  in  turn
were struck down because the requirements of Paragraph 7 of  the  DPCO  1995
were not adhered to. The correctness of this decision is before us.
16.   One additional contention urged on behalf of one  of  the  respondents
(M/s 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  Rs.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 was also challenged in the  High  Court.
The High Court found no merit in the writ petitions and dismissed them.
19.   The primary submission made before us by learned counsel appearing  on
behalf of Dr. Reddy’s  Laboratories  was  that  the  ceiling  price  of  the
Norfloxacin formulations could not be fixed  prior  to  fixing  the  maximum
sale price of the bulk drug Norfloxacin under Paragraph 3 of the DPCO  1995.
 It was also contended that the requirements of  Paragraph  7  of  the  DPCO
1995 were not adhered to while notifying the ceiling  price  of  Norfloxacin
formulations.
Brief background
20.   The core issue in this batch of appeals relates to the  interpretation
and application of Paragraph 7 of the DPCO 1995 and Paragraphs 8  and  9  of
the DPCO  1995  –  the  extent  of  flexibility  available  to  the  Central
Government in fixing the retail price and ceiling price of formulations  and
the rigidity expected by the statutory Order. The specific  issue  in  these
appeals relates to the validity of  various  notifications  prescribing  the
norms for calculating the retail price of formulations   under  Paragraph  7
of the DPCO 1995 for the purposes of Paragraphs 8 and 9 of the DPCO 1995.
21.   Paragraph 7 of the DPCO 1995 reads as follows:
“7. Calculation of retail price  of  formulation.  The  retail  price  of  a
formulation shall be calculated by the Government  in  accordance  with  the
following formula, namely, ??
      R.P. = (M.C.+ C.C.+ P.M.+P.C.) x (1+MAPE/100) + ED.
      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 shall be fixed as a  norm  every  year
by notification in the Official Gazette in this behalf;
      “P.M.” means cost of the packing  material  used  in  the  packing  of
concerned formulation, including process loss, and shall be fixed as a  norm
every year by notification in the Official Gazette in this behalf;
       “P.C.”  means  packing  charges  worked  out   in   accordance   with
established procedures of costing and shall be fixed as a  norm  every  year
by notification in the Official Gazette in this behalf;
      “MAPE”  (Maximum  Allowable  Post-manufacturing  Expenses)  means  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 retail price of a  formulation  could
not be fixed without first determining the maximum  sale  price  of  a  bulk
drug in terms of Paragraph 3 of the DPCO 1995.  That  apart,  there  was  no
dispute or grievance  made  about  material  cost  and  MAPE.   The  dispute
centred round fixing the norms for conversion cost,  packing  material  cost
and packing charges “every year”. There was also a question  raised  in  one
of the appeals that in the absence of the cost  of  packing  material  being
fixed as a norm, the formula for fixing the  retail  price  of  formulations
under Paragraph 7 of the DPCO 1995 could not operate.
23.   According to the Central Government, the norms fixed  under  Paragraph
7 of the DPCO 1995 have  been fixed after due application  of  mind  to  the
available material and despite the lack of any  effective  cooperation  from
the manufacturers/formulators in  disclosing  information  that  could  have
been  of  further  assistance  to  the  Central  Government.   Additionally,
according to the Central Government if  the  manufacturers/formulators  were
aggrieved by the retail price and ceiling price fixed on the  basis  of  the
norms, they had the remedy  (which  they  did  not  avail)  of  having  them
revised in accordance with the provisions of the DPCO 1995.
24.   Before discussing the historical background leading up to the  dispute
before us, it is necessary to state that there is no  dispute  that  earlier
the norms were fixed under Paragraph 6 of the DPCO 1987  by  a  notification
dated 17th February,  1989  issued  by  the  Central  Government  and  later
updated by another notification  dated  15th  July,  1993  pursuant  to  the
recommendations of the Sankaran Committee. There  is  no  challenge  to  the
1989 or the 1993 norms.
25.   However, it is significant that the norms prescribed by  the  February
1989 notification pertained to 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. Norms were  not
prescribed  for  cost  of  packing  material.  Similarly   the   July   1993
notification prescribed norms only for conversion cost and packing  charges.
It did not prescribe any norms for process  loss  of  raw  materials  (other
than packing materials in  conversion  and  packing)  and  process  loss  of
packing materials in packaging or for cost of packing material.
26.   Paragraph 6 of the DPCO 1987 is  as  follows  and  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 notification in the Official Gazette in this behalf,
      “MAPE” means Maximum Allowable Post-Manufacturing  Expenses  including
trade margin referred to in para.7,
      “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 50 per cent of the landed cost.
      Explanation. ?? For the  purposes  of  above  proviso,  “landed  cost”
shall mean the cost  of  import  of  drug  inclusive  of  customs  duty  and
clearing charges.” [Emphasis supplied]

27.   We have been informed by the learned Solicitor General that  today  as
many as 2147 formulations are manufactured in the country. The number  might
have been less during the period that we are concerned with, but surely  the
number would not have been significantly less. But be that as it may,  there
can be no doubt that the Central Government is  concerned  with  the  retail
price and ceiling price of an extremely large  number  of  formulations.  To
this  may  be  added  the  ‘complication’  of  the  variety  in  which   the
formulations could be available.  These  could  be  in  the  form  of  plain
tablets, coated tablets, sustained release  tablets  (all  three  categories
being small, medium, large  and  extra  large);  capsules  (soft,  hard  and
sustained release); liquids (syrup and  elixirs,  suspension,  emulsion  and
malts and paediatric drops); ointments and creams; ampoules; sterile  liquid
vials; non sterile dry powder and granules; sterile dry powder  and  sterile
dry powder liophylised. The packing of the formulations could be  in  strips
of 10 or 15 or 20 or more or in bottles, or tubes or  vials  etc.  In  other
words,  the  task  of  fixing  the  retail  price  and  ceiling   price   of
formulations is not only gargantuan but also extremely complex.
28.   It is also important to  remember  that  the  purpose  of  fixing  the
retail price and ceiling price of formulations is to  make  them  affordable
and  ultimately  benefit  the  consumer  of  medicines.  Profits  earned  by
manufacturers/formulators are secondary and ‘profiteering’ is certainly  out
of the question.  The  preamble  to  the  Essential  Commodities  Act,  1955
provides:
“An Act to provide, in the interests of the general public, for the  control
of the production, supply and distribution of, and trade  and  commerce,  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  fixed
from time to time by notification in the Official Gazette in  this  behalf.”
Notwithstanding this,  the  norm  for  cost  of  packing  material  was  not
prescribed in the notification dated 17th February, 1989  and  no  objection
was apparently raised by any manufacturer of formulations or  formulator   –
at least no objection was brought  to  our  notice  by  anybody.   In  other
words, as far as the  drug  industry  is  concerned  the  formula  given  in
Paragraph 6 of the DPCO 1987 and Paragraph 7  of  the  DPCO  1995  could  be
operated without prescribing the norm for cost of packing material.
30.   The Sankaran Committee held  its  first  meeting  on  22th  September,
1987.  During the course of deliberations, it sought the views of  the  drug
industry associations such as the Organization of  Pharmaceutical  Producers
of India (OPPI) and the Indian  Drug  Manufacturers  Association  (IDMA)  to
enable it to satisfactorily complete its task. The Sankaran  Committee  also
issued  a  questionnaire   to   23   companies   (manufacturers/formulators)
soliciting some information.  Subsequently, the questionnaire  was  sent  to
another 12 such companies since the response from  the  earlier  set  of  23
companies was somewhat lukewarm.
31.   After analyzing all the material  available  before  it,  hearing  the
drug industry associations and visiting a few  companies  to  be  acquainted
with the  actual  conversion  and  production  centres  in  the  field,  the
Sankaran Committee submitted its Report sometime in April, 1988.
32.   A few observations from the Report  of  the  Sankaran  Committee  need
mentioning:
The norms for conversion cost,  packing  charges,  process  losses  for  raw
materials and packing material were originally  notified  sometime  in  1974
under the DPCO 1970. These norms were  re-notified  as  recommended  by  the
Bureau of Industrial Costs and Prices (for short the BICP) on 3rd May,  1979
vide S.O. No. 259(E) under the DPCO 1979.  These norms as  notified  on  3rd
May, 1979 were essentially the same as notified in 1974.
However, with regard to the cost of packing materials, norms were not  fixed
under the DPCO 1979. The Sankaran  Committee  observed  in  this  regard  as
follows:
“4.   No norms  have  been  fixed  under  DPCO  1979  for  cost  of  packing
material. This fluctuates and differs from product to product. The  BICP  is
at present guided by cost ceilings which are  reviewed  periodically.  These
have not been statutorily notified as norms.  Calculations  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.”

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:
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.   Accordingly,  it  was
generally recommended that conversion cost to be increased by 100% over  the
existing norms.

Packing charges:  By and large, a similar view (as  above)  was  taken  with
regard to packing charges namely that the existing  norms  be  increased  by
100%.

Process loss  of  raw  materials  and  packing  materials:  Perhaps  due  to
improved  technological  processes   and   efficiencies   in   manufacturing
techniques, the data submitted  by  the  manufacturers  “though  hesitantly”
clearly indicated that the existing norms  for  process  loss  of  materials
were on the higher side. Accordingly, a reduction of 1% (broadly  –  we  are
not going into specifics since it is not necessary) was recommended  in  the
norms for process loss on raw materials and packing materials.

Packing material: As mentioned above, the cost of packing materials was  not
fixed under the DPCO 1979 since the  cost  of  packing  material  fluctuates
frequently and also differs from product to product. It  was  observed  that
an exercise is being undertaken by the BICP in this  regard  and  until  the
ceiling cost of packing material is updated by the BICP, it was  recommended
by the Sankaran Committee that the actuals may be allowed.

34.   Paragraphs 11 and 12 from Chapter 5 (titled  Recommendations)  of  the
Report of the Sankaran Committee are  important  for  appreciating  why  the
cost of packing materials was not fixed. These paragraphs read as follows:
“11.  As regards  the  norms  for  packing  materials  costs,  the  Industry
Associations (IDMA & OPPI) represented  that  packing  material  costs  vary
from product to product  depending  on  the  nature  of  the  product  being
marketed and fixation of  norms  for  such  type  of  products  may  not  be
justifiable.  They, therefore, requested the Committee  to  consider  actual
cost of packing materials.
12.    The  Committee  notes  that  cost  of  packing  material   fluctuates
frequently and also differs from product to product.   Due  to  this  reason
and the fact that fixation of norm for this  is  very  difficult,  no  norms
were fixed in 1979.  No norms have  been  subsequently  recommended  by  the
BICP.  The current practice of the  BICP  is  to  regulate  the  claims  for
packing material cost on the basis of ceiling cost for various  packages  as
approved  by  Drugs  Prices  Review  Committee.   These  ceiling  costs,  we
understand, are reviewed  periodically  by  the  BICP.   While  recommending
prices of  formulations,  the  BICP  is  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.   The  revised  norms
are bound to lead to some  increase  in  the  prices  of  formulations.   In
Annexure IX this Committee has tried  to  work  out  the  likely  impact  of
recommended norms in the prices of a few select  formulations.   The  effect
on 37 representative formulations of various  companies  is  included  here.
The price increase if the entire recommended  norms  are  announced,  varies
from 0.45 percent to 47.71 percent.  These  formulations  cover  almost  all
the dosage forms.  In view of the substantial increase in  the  price  of  a
few formulations, this Committee recommends  that  instead  of  giving  full
increase in the norms, that is, implementing the revised norms  immediately,
it  is  suggested  that  50%  of  the  increased  norms  may  be   announced
immediately. At the end of the first year, a further 25% increase  in  norms
may be implemented, the remaining 25% being added at the end of  the  second
year. The likely effect of such  staggered  implementation  of  the  revised
norms shall result in increase of 0.36%  to  26.32  percent  change  in  the
existing prices.” [Emphasis supplied by us].

36.   A perusal of Annexure  VIII  indicates  that  the  Sankaran  Committee
recommended fixing  of  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.  Significantly,  norms
for cost of packing materials were not fixed by the Sankaran  Committee  for
the reasons given above and instead, it was recommended that  provision  for
actual cost of packing materials be allowed,  as  recommended  by  the  drug
industry.  The discussion in the Sankaran Committee  points  to  a  two-fold
significance - that from  1979  onwards,  at  least,  the  cost  of  packing
material (as a norm) had not been prescribed and that the drug industry  was
apparently quite  satisfied  with  the  provision  of  actuals  for  packing
material which could certainly not be to the disadvantage of anybody in  the
drug industry.
37.   The Central Government accepted the Report of the  Sankaran  Committee
and a notification was issued on 17th February, 1989 by which the norms  for
conversion cost, for packing charges and for process loss of  raw  materials
(other than packing materials in conversion and packing)  and  process  loss
of packing materials in packaging were notified with effect from 1st  April,
1989.
38.   It appears that even though  the  Sankaran  Committee  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 Policy, 1994
40.   The Government of India  announced  the  new  Drug  Policy  which  was
issued on 15th September, 1994.  Some of  the  relevant  paragraphs  of  the
Policy relate to the background of the earlier  Drug  Policy  of  1986,  the
necessity of setting up an independent body of  experts  to  be  called  the
National Pharmaceutical Pricing Authority (NPPA) to do  the  work  of  price
fixation of drugs and formulations and the establishment of a National  Drug
Authority by a separate Act of Parliament to perform a variety of  specified
functions.  It is not necessary to detail  the  functions  of  the  National
Drug Authority except to say that despite a lapse of more than 20 years  the
National Drug Authority has not yet been set up.
41.   Subsequent to the new Drug Policy of 1994, the DPCO 1995 was  notified
on 6th January, 1995 by the Central Government and the NPPA was  set  up  on
29th August, 1997.
Masood Committee
42.   Instead of taking immediate steps to set up the NPPA in terms  of  the
new Drug Policy, the Central Government set  up  a  Norms  Review  Committee
(called the Masood Committee) on  24th  April,  1995  to  review  the  norms
recommended by the Sankaran  Committee.   The  terms  of  reference  of  the
Masood Committee were as follows:
“The terms of  reference  of  the  Committee  will  include  review  of  the
existing norms relating to Conversion Cost  (CC),  Packing  Costs  (PC)  and
Process Losses and working out of norms for Packing Material (PM)  and  also
giving recommendations in regard to related matter such as  norms  for  pro-
rata price fixation on the basis of ceiling prices of formulations.

The Committee will submit its recommendations to  the  Government  within  a
period of 2 months from the date of issue of this office memorandum.”

43.   During the course of submissions before us learned counsel  for  Cipla
was intensely critical of the Report submitted by the  Masood  Committee  on
31st August, 1995 and, therefore, some broad details of the contents of  the
Report are necessary.
44.   The Masood Committee was of the view that it was necessary  to  elicit
the  views  of  the  drug  industry  before  making   its   recommendations.
Accordingly, a meeting was held on 31st May, 1995 in  which  representatives
from  various  drug  industry  associations  participated.    The   industry
associations represented were  the  Indian  Drug  Manufacturers  Association
(IDMA), the Organization of Pharmaceutical Producers of  India  (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:
Ad-hoc relief based on inflation/increase  in  consumer  price  index  since
1987 should be given.

Associations  felt  that  a  simplified   questionnaire   would   meet   the
requirements to give  maximum  benefit  in  fastest  time  and  no  detailed
exercise was required.

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.

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  were  received  by  the  Masood
Committee which then issued the questionnaire on 9/12 June, 1995  requesting
the manufacturers/formulators to furnish the requisite information  by  30th
June, 1995.  Thereafter, some representations were received  requesting  for
the deletion of some questions but this was not acceded  to  by  the  Masood
Committee. It is recorded in the Report of  the  Masood  Committee  that  no
unit furnished replies to the questionnaire despite reminders  and  requests
to the industry through the Department of Chemicals and  Petrochemicals  for
extending necessary cooperation to the Masood Committee. The absence of  any
response to  the  questionnaire  was  perhaps  due  to  the  demand  of  the
associations [demand (c) above] to make use of the Cost  Audit  Reports  for
working out escalations over the existing norms.
46.   Faced with this situation, the Masood Committee had no option  but  to
examine  the  Report  prepared  by  the  Sankaran  Committee  and  also  the
available Cost Audit Reports (hereinafter referred to as the CARs)  for  the
latest years, namely, 1993-94.
47.   With regard to the norms for conversion cost and packing charges,  the
Masood Committee observed in Chapter 3 of its Report that  it  examined  the
data in  respect  of  16  companies  which  had  apparently  submitted  some
information to the Sankaran Committee  out  of  35  companies  to  whom  the
questionnaire had been sent. [Earlier even the Sankaran  Committee  and  the
BICP did not receive full cooperation from the drug industry].  The   Masood
Committee was of the view that since the absorbed cost of  conversion  costs
and packing charges was in the range of more than 50% and up to  82%  for  7
out of 16 companies, the conclusion earlier arrived at that  absorption  was
to the extent of 50% of the then prevailing norms appeared to be  arbitrary.
 On an examination of the  materials  before  the  Sankaran  Committee,  the
conclusion arrived at by the Masood Committee was that it was  not  possible
to review the norms.  The Masood Committee therefore decided  to  look  into
CARs of 1993-94.  It was noted that the CARs were available  in  respect  of
only 6 companies and some discrepancies were noted in the  information  made
available in the CARs. One of the criticisms made  by  learned  counsel  for
Cipla was that  the  Masood  Committee  considered  the  CARs  of  only  two
companies and that too for only three or  four  formulations  and  therefore
the conclusion that costs 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 also not be made use of.
50.    The  Masood  Committee  also  considered  other   factors   including
profitability situation as per the CARs, the revision  of  packing  material
ceilings from 7th July, 1994,  a  decrease  in  total  formulation  activity
coming under price control from 70% under the DPCO 1987  to  50%  under  the
DPCO 1995 and uniform MAPE of 100% under the DPCO 1995 as  against  75%  and
100% MAPE under the DPCO 1987.
51.   On the basis of the analysis and details available from the Report  of
the Sankaran Committee  and  the  CARs,  it  was  concluded  by  the  Masood
Committee that no case was made out for an increase in conversion  cost  and
packing charges without a proper study. The question of an ad  hoc  increase
also did not arise.
52.   On the issue of process loss on raw materials and  packing  materials,
it may be recalled that this had  actually  been  reduced  by  the  Sankaran
Committee.  On the basis of the CARs of the 6 companies that were  available
with the Masood Committee,  it  was  concluded  that  with  high  production
levels  and  better  capacity  utilization  as  well  as  new  technological
processes, the process loss was expected to come down.  In any event,  since
no  information  was  provided  to  the   Masood   Committee   through   the
questionnaire sent to the industry and the companies, it was  not  desirable
to recommend any ad hoc  reduction  in  the  existing  norms.  However,  the
Masood Committee expressed the view that  the  existing  norms  for  process
loss on raw materials and packing materials were on the high side.
53.   With regard to the packing material  cost,  as  already  noted  above,
these were subject to ceilings as worked out and  recommended  by  the  BICP
and approved by the Central Government from time to  time.   The  last  such
approval was on 7th July, 1994.   The  Masood  Committee  decided  to  adopt
packing material costs (without process loss) “as might  be  available  from
the study by Drug Cell [of the BICP] and utilise  the  same  for  developing
norms for Packing Material Cost.”
54.   The Masood Committee gave its conclusion in Chapter 7 of  its  Report.
Some of the relevant conclusions are given below (not in seriatim):
The Sankaran Committee after estimating the CC &  PC  [conversion  cost  and
packing charges] for the industry recommended that the differential  between
the estimated CC and PC and the then existing [norms?], be given in  phases.
 It implied that the industry got the assessed 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.

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.

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  to  the
Questionnaire are received and an in-depth analysis done by an Expert  Group
to assess the escalation/de-escalation required in  the  existing  norms  of
not only CC, PC and PL (both for raw  materials  &  packing  materials)  but
also overages.

The other terms of reference …… have been dealt with in Chapters  5  and  6.
Based on the information furnished  by  the  industry  in  response  to  the
questionnaire earlier issued by the BICP, norms for packing  material  (with
process loss) only could be worked out.

55.   The recommendations made by the Masood Committee  in  connection  with
the terms of reference were given  in  Chapter  8  of  the  Report  and  the
relevant recommendations are:
On the basis of analysis described in relevant  chapters,  the  revision  of
existing norms for CC, PC and PL in accordance with  established  procedures
of costing cannot be done without evaluation of  the  latest  data.   Taking
into account all the relevant factors, the Committee is firmly of  the  view
that there is no case for any increase in the present norms  without  study.
Consequently, the question of an ad-hoc increase, does not exist at all.

Norms for packing material costs (without process  loss)  have  been  worked
out as given in Annex. 5.3 Implementation of these  norms  in  isolation  is
not recommended keeping in view the overall profitability  scenario  of  the
industry.

xxxxx


(a) In-depth study in regard to CC, PC, PL and also  overages  is  necessary
for revision of  existing  norms/ceilings  on  a  scientific  basis  and  in
accordance with the established procedures of costing.

(b) Para 7 of DPCO, 1995 stipulates yearly revision of norms for CC, PC,  PM
and PL and does not  provide  for  any  ad-hoc  increases.  This  calls  for
developing indices based on in-depth study and  effecting  revision  of  all
the norms simultaneously every year.

(c) xxxxx       [Emphasis supplied by us]

56.   It will be seen from a reading of the Report of the  Masood  Committee
that the industry was not at all inclined  to  furnish  information  to  the
Masood Committee and the exercise which it was tasked to  perform  could  be
carried out only on the basis of the Report of the  Sankaran  Committee  and
the CARs of 6 companies. According to the  Masood  Committee  this  material
was clearly inadequate to arrive at any definite  conclusion,  necessitating
the recommendation of setting up an  Expert  Group  to  complete  the  task.
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 or no activity from  the  side
of the Central Government or from the side of the  industry  in  respect  of
fixing the norms “every year” under the DPCO 1995.  Our attention  has  been
drawn to an unspecified “demand” made perhaps sometime in early 1997  for  a
revision in the norms in the cost of packing  material.   This  was  brought
out in an official file noting dated 2nd April,  1997  followed  by  another
official file noting of the same date suggesting acceptance  of  the  Report
of the Masood Committee, including the recommendation  that  the  norms  for
cost of packing material (without process loss) could not be implemented  in
isolation. It also appears from the official file notings placed  before  us
by the learned Solicitor General that  the  constitution  of  the  NPPA  was
expected and one of the suggestions put forth in the official  file  notings
was to await the constitution and functioning of the NPPA and  authorize  it
to  conduct  a  thorough  study  of  the  type  recommended  by  the  Masood
Committee.
59.   The NPPA was eventually constituted on 29th August, 1997.  We are  not
aware of the activities of the NPPA thereafter except  that  a  meeting  was
held on 27th January, 1998 by the NPPA  with  representatives  of  IDMA  and
OPPI where there was a discussion for  the  need  to  revise  the  norms  of
conversion cost and packing charges.  This was followed by  a  letter  dated
27th April, 1998 sent by the industry indicating  that  the  existing  norms
were based on the data available in  1988  which  had  become  outdated  and
obsolete and since then there had been a significant increase  in  the  cost
of various items that go into the calculation of these norms.
60.   Apparently as a result of the dialogue and correspondence between  the
NPPA and the industry, a Committee called the Jharwal Committee was  set  up
on 8th October, 1998. It may be  noted  that  Dr.  Jharwal  was  the  Member
Secretary of the NPPA.  In its Report  submitted  on  5th  April,  1999  the
Jharwal Committee noted that the packing  material  cost  ceiling  had  been
revised on 7th July, 1994 by the BICP and thereafter it was revised  by  the
NPPA in February 1998 (again with no  objection  from  the  drug  industry).
Consequently, the only issue addressed by  the  Jharwal  Committee  was  the
fixing of norms for conversion cost, for packing  charges  and  for  process
loss.
61.   The Jharwal Committee had earlier prepared a draft  questionnaire  (as
was done by the Sankaran Committee 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 reasonable  to
compensate for the assessed increase in conversion cost and packing  charges
only to the extent of 50% of the inflation factor which worked out to  4.5%.
This  was  criticized  by  learned  counsel  for  Cipla  as  being   totally
unrealistic.
63.   As already  mentioned  above  since  the  packing  material  cost  had
already been revised in February 1998 (after July  1994)  no  recommendation
was made by the Jharwal Committee in this regard. As  regards  process  loss
the Jharwal Committee felt that there was no appropriate  measure  available
to suggest any ad hoc revision in the absence of factual  data  and  it  was
suggested that the process loss may be re-notified  at  the  existing  level
till revised on the basis of a fresh study already in progress  through  the
NPPA.
64.   One important observation made by the Jharwal Committee in its  Report
relating to the non-cooperation of the industry and its suggestion to  defer
a detailed study is required to be quoted.  This reads as follows:
“It  would  also  be  pertinent  to  mention  that   though   the   Industry
Associations (OPPI and IDMA) were impressed upon the need  to  advise  their
member companies to furnish the  required  data  to  NPPA  as  early  as  in
October, 1998, there has been  a  luke-warm  response  and  indifference  on
their part in furnishing the data.  They have even suggested NPPA  to  defer
the detailed study, which is already in progress.  NPPA  is  continuing  its
effort to complete the study and accordingly sent  couple  of  reminders  to
the  manufacturers,  advising  them  to  submit  the   data   expeditiously.
However, the response so far has been far from satisfactory.”

65.   The conclusions of the Jharwal Committee were to the effect  that  the
existing norms of conversion cost and packing  charges  may  be  revised  by
giving an ad hoc increase of only 4.5% in each as an interim measure;  there
is no need to revise the said norms on an ad-hoc basis  beyond  4.5%  unless
warranted by the outcome of a detailed study already  in  progress;  if  the
industry does not furnish the required  data  the  same  norms  may  be  re-
notified every year to meet the requirements of the DPCO 1995 and the  norms
for process loss may be re-notified at the existing level  till  revised  on
the basis of the fresh study already in progress.
66.   The Report of the Jharwal Committee and its acceptance by the  Central
Government led to the issuance of a notification S.O.  578  (E)  dated  13th
July, 1999 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:
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.

Faced with the reluctance of the drug industry to part with  necessary  data
the Central Government had no option  but  to  carry  out  its  exercise  of
prescribing norms in terms of Paragraph 6 of the DPCO 1987 and  Paragraph  7
of the DPCO 1995 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.  This  might  have  involved
some element  of  ad  hoc  decision  making  and  guess-work  but  that  was
necessitated by the circumstances confronting the expert bodies  set  up  by
Central Government.

The norms prescribed by the Sankaran Committee appeared to be  adequate  and
actually provided a cushion but required a little tweaking at a later  stage
due to a variety of factors, including inflation.  There does appear  to  be
general acceptance by the drug industry of the norms prescribed pursuant  to
the Report of the Sankaran Committee. Similarly, there  does  appear  to  be
general acceptance of the ad hoc measures taken post  the  Masood  Committee
and eventually the notification issued by the  Central  Government  pursuant
to the Report of the  Jharwal  Committee  in  respect  of  conversion  cost,
packing charges and process loss.

The issue of packing material cost was separately addressed by  the  Central
Government through the BICP and also through decisions taken  on  7th  July,
1994 and February 1998. The norms for the cost of packing material were  not
prescribed or notified in the Official Gazette. However, the  drug  industry
was entitled to work out the cost of packing material  on  actuals,  and  it
seemed quite satisfied with the result given that the ceiling was  fixed  in
July 1994 and February 1998.
68.   Norms were not prescribed “every year” as required by Paragraph  7  of
the DPCO 1995 particularly for the  years  1995-1996,  1996-1997,  1997-1998
and 1998-1999. We were informed that the “year” is from July to June of  the
following year. The learned Solicitor General sought to justify the  absence
of prescribing the norms “every year” as required  by  Paragraph  7  of  the
DPCO 1995 for the four years mentioned above. We will be  dealing  with  the
submissions in this regard at a later stage.
Exercise for subsequent years
69.   Post the notification dated 13th July, 1999 the  next  stage  for  the
Central Government was to notify the norms  for  2000-2001.   This  exercise
appears to have been initiated with 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.   It  appears  that  the  drug  industry  associations  had
engaged an independent consultant in this  regard  and  a  two  page  report
given by the consultant was submitted to the NPPA  by  a  letter  dated  2nd
March, 2000 by the associations.
71.   We have seen the report and it is clearly inadequate. It  was  pointed
out by the NPPA in a letter dated 23rd March,  2000  that  no  justification
had been given in the report for the  rise  in  the  industrial  average  in
respect of conversion cost and packing charges nor had any  indication  been
given as to how the industrial average had  been  worked  out  as  also  the
source of information.
72.   No further material has been brought to  our  notice  with  regard  to
fixing the norms for the year 2000-2001 in terms of Paragraph 7 of the  DPCO
1995.
73.   As on earlier occasions and in the absence of any further  information
or data with the NPPA or  the  Central  Government,  a  decision  was  taken
towards the end of June, 2000 to notify the  existing  norms  for  2000-2001
without allowing for any change from the  norms  prescribed  on  13th  July,
1999.  Accordingly, a notification being S.O. 660(E) dated 12th  July,  2000
was issued and gazetted.
74.   Similarly, for 2001-2002 what is placed before  us  by  the  Union  of
India is a two page official noting dated 9th July, 2001  referring  to  the
Report of the Jharwal Committee. The official file  noting  further  records
that despite requests by the NPPA to IDMA  and  OPPI  requisite  information
was not forthcoming from October, 1998 onward.  A reference was made to  the
letter dated 23rd March, 2000 and that no response to it had been  received.
In view of this, it was proposed (and that proposal was accepted)  that  the
same norms as were prescribed on 13th July, 1999 may be re-notified  as  the
norms for 2001-2002.  There is no dispute that a gazette notification  dated
12th July, 2001 was issued in terms of the decision taken.
75.   The stalemate continued even thereafter for the next two  years  2002-
2003 and 2003-2004 with the NPPA and the Central Government insisting  on  a
response to the questionnaires sent  for  collecting  data  for  fixing  the
norms under Paragraph  7  of  the  DPCO  1995  and  the  reluctance  of  the
associations to supply the data. This resulted in the  norms  prescribed  by
the notification dated 13th July, 1999 being re-notified for 2002-2003 by  a
notification dated  12th  July,  2002  and  for  the  year  2003-2004  by  a
notification 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 Pharmaceutical Association wrote to the NPPA on 9th  March,
2002 to the effect that its Executive Council  in  a  meeting  held  on  8th
March, 2002 expressed its inability to participate in  the  exercise  for  a
study to review the norms for conversion cost, packing charges  and  process
loss.
78.   Similarly, IDMA communicated to  the  Cost  Accounts  Branch  on  10th
July,  2003  that  its  Executive  Committee  had   passed   the   following
resolution:
“All the major pharmaceutical companies are  covered  by  cost  records  and
cost audit.  Hence a cost audit report duly audited  by  a  practicing  cost
accountant is submitted  by  these  companies  to  the  cost  audit  branch,
Department of Company Affairs, New Delhi.  NPPA should be requested  to  use
these readily available audited cost  audit  reports,  for  the  purpose  of
revision of CC/PC norms, instead of asking the companies to again  send  the
cost data in separate formats which will be voluminous  and  time  consuming
for the industry.”

79.   The Taxation and Pricing Policy Committee of OPPI, addressed a  letter
dated 22nd July, 2003 to the Cost Accounts Branch to  the  effect  that  the
representatives of OPPI and IDMA had suggested in  a  meeting  held  on  5th
July, 2002 with the NPPA that a study of the  conversion  cost  and  packing
charges should be based on the  CARs  already  available  with  the  Central
Government and that the study should be conducted on that basis.
80.   The  Cost  Accounts  Branch  informed  OPPI  by  a  letter  dated  2nd
September, 2003 that a study based “entirely on  the  information  available
in the cost audit reports might result in the  Government  not  obtaining  a
total picture of the actual conversion cost,  packing  charges  and  process
loss in the drug formulation  industry.  Our  aim,  when  we  requested  the
industry for making available the cost data and other information  vide  our
questionnaire, was to take into account the actual cost implications of  all
the factors in the drug industry and not restrict it  to  only  those  where
the cost  audit  report  is  available.”  It  was  added  that  despite  the
availability of the  CARs  “it  was  considered  appropriate  to  frame  the
questionnaire for seeking the company specific information/data relevant  to
the  study  under  reference.   The  questionnaire  was  circulated  to  the
pharmaceutical units with  the  purpose  of  safeguarding  the  interest  of
industry and taking them into confidence to develop  the  realistic  CC,  PC
and PL norms 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  provisions  of
the DPCO 1995 but the manufacturers/formulators did  not  take  recourse  to
these provisions and instead approached the Courts after much delay  and  by
way of an after-thought. These  submissions  were  refuted  by  the  learned
counsel appearing for Cipla and other manufacturers/formulators.
Judicial review
83.   The primary  issues  before  us  relate  to  (i)  the  legitimacy  and
soundness of the materials on the basis of which the norms  were  prescribed
for application of the formula given in Paragraph 7 of the DPCO 1995 and  on
the basis of which the retail price and ceiling price of  formulations  were
fixed under Paragraphs 8 and 9 of the DPCO 1995;  (ii)  the  effect  of  the
failure of the Central Government to prescribe the norms under  Paragraph  7
of the DPCO 1995 on a yearly basis, and (iii) the effect of the  failure  of
the Central Government to prescribe the norms for cost of  packing  material
under Paragraph 7 of the DPCO 1995. The issue before us does not  relate  to
the actual norms or actually fixing the retail price  or  ceiling  price  of
formulations under Paragraphs 8 and 9 of the DPCO 1995  in  the  sense  that
there is no dispute that for the purposes of  fixing  the  retail  price  or
ceiling price of formulations under Paragraphs 8 and 9 of the DPCO 1995  the
norms were prescribed and the formula  given  in  Paragraph  7  thereof  was
adhered to. Even otherwise, the actual norms and price fixing on  the  basis
of the norms is out of bounds for us.
(i) Issue of non-application of mind
84.   The first submission of learned  counsel  for  Cipla  relates  to  the
materials  and  the  non-application  of  mind  resulting  in  the   Central
Government prescribing the norms under Paragraph 7 of  the  DPCO  1995.  The
challenge to the retail  price  and  ceiling  price  of  formulations  fixed
through various notifications is only collateral or  consequential.  In  its
impugned judgment and order the Allahabad High Court held that there was  no
application of mind by the Central Government in prescribing the  norms  for
conversion cost, packing charges and process loss. The second conclusion  is
that the Central Government failed to adhere to the provisions of  Paragraph
7 of the DPCO 1995 in not prescribing the norms on a yearly basis.
85.   Although there is no direct challenge to the notification  dated  13th
July, 1999 prescribing the norms under Paragraph 7 of the DPCO 1995  it  was
submitted that that notification 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  of
which the norms were prescribed, namely, the  Masood  Committee  Report  and
the Jharwal Committee Report.  Learned  counsel  had  no  criticism  of  the
Sankaran Committee Report and indeed  generally  supported  its  conclusions
and recommendations.
87.   A perusal of the Report of the Masood Committee and  subsequently  the
Report of  the  Jharwal  Committee  clearly  brings  out  that  the  Central
Government initiated a detailed  exercise  for  prescribing  the  norms  but
unfortunately the drug industry did not extend its full cooperation  in  the
exercise and declined to provide  necessary  information  and  data  despite
requests and reminders. Therefore, the Central Government was left  with  no
alternative but to notify the norms in compliance  with  the  provisions  of
the DPCO 1995 on the basis of the materials already  available.   The  first
question is, could the Central Government rely on these materials?
88.   The Report of the Masood Committee was roundly criticized  by  learned
counsel for Cipla since its exercise was hasty and carried out  without  any
field visits and without considering ground realities.  The  Report  of  the
Jharwal Committee was also  strongly  criticized  by  learned  counsel.  The
general line of criticism was that the Reports of the Masood  Committee  and
the Jharwal Committee were  based  on  flawed  reasoning  and  an  incorrect
appreciation of the data and facts. As far  as  the  Report  of  the  Masood
Committee is concerned, it was also  criticized  for  not  recommending  the
norms – a task it was set up to perform. The Masood Committee merely  passed
on the buck to another expert body for  conducting  an  in-depth  study  for
recommending the norms for conversion cost and packing charges. However,  it
must be said that the Masood Committee did some useful work by  recommending
the norms for cost of packing material but that could not be acted  upon  by
the Central Government in isolation and in the absence of norms  on  process
loss. A significant observation of  the  Masood  Committee  related  to  the
stipulation for a yearly notification of norms in terms of  the  DPCO  1995.
The Report of the Jharwal  Committee  was  criticized  for  taking,  amongst
others, an unrealistic view of the inflation factor and  not  really  adding
anything of value to the Report of the Sankaran Committee.
89.    There  is  no  doubt  that  the  Masood  Committee  Report  was   the
justification for the Central Government not revising the norms  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.[2] . 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 “price fixation is neither the function nor the forte of  the  court,
it is neither concerned with the policy nor the rates. But the court  cannot
deny  to  itself  the  jurisdiction  to  enquire  into  the   question,   in
appropriate proceedings, whether relevant considerations have  gone  in  and
irrelevant considerations kept out of the determination of the price.”
92.   In that context and in response to the  submission  made,  this  Court
drew  a  distinction  between   price   fixation   governed   by   statutory
considerations and price fixation governed by non-statutory  considerations.
It was held that on this basis Union of  India  v.  Cynamide  India  Ltd.  &
Anr.[3] was distinguishable since it dealt  with  price  fixation  based  on
statutory considerations. In a case of price fixation having its  origin  on
non-statutory materials the scope of judicial scrutiny would  be  far  less.
It was said in paragraph 15 of the Report as follows:
“This Court  was  examining  [in  Cynamide  India]  the  scope  of  judicial
scrutiny in  the  matters  of  price  fixation  where  it  was  governed  by
statutory provisions. The scope of  judicial  scrutiny  would  be  far  less
where the price fixation is not governed  by  the  statute  or  a  statutory
order. Where the legislature has prescribed  the  factors  which  should  be
taken into consideration and which should guide the determination of  price,
the courts would examine whether the considerations  for  fixing  the  price
mentioned in the statute or the statutory  order  have  been  kept  in  mind
while  fixing  the  price  and  whether  these  factors  have   guided   the
determination. The courts would not go beyond that  point.  In  the  present
appeals, there is no  law,  or  any  statutory  provision  laying  down  the
criteria or the principles which must be followed, or which must  guide  the
determination of rates of royalty. No doubt, any arbitrary action  taken  by
the State would be subject to scrutiny by the courts  because  arbitrariness
is the very antithesis of rule of law. But this  does  not  mean  that  this
Court would act as an Appellate Authority over the  determination  of  rates
of royalty by the Government….. It is open to the  Government  to  fix  such
price as it thinks appropriate  having  regard  to  public  interest,  which
inter alia, may include interest of  revenue,  environmental,  ecology,  the
need of mills and the requirements of other consumers. The price is  not  to
be fixed keeping in mind 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 7 of the  DPCO  1995  –  but
still did not prescribe the norms for cost of packing  material  recommended
by the Masood Committee, an issue that will be considered later.
95.   While learned counsel for Cipla  might  have  serious  differences  of
opinion with the recommendations of these particular non-statutory  Reports,
generally a challenge to Reports prepared by expert bodies is not  easy  but
is subject to lesser judicial scrutiny.  To rephrase what was said  in  Prag
Ice and Oil Mills and Anr. v. Union of India[4] a factor here  or  a  factor
there that should have been taken into account but has been  ignored  should
not invalidate the Reports - mere errors in the Reports are not  subject  to
judicial review.
96.   That there can  be  a  legitimate  difference  of  opinion  (sometimes
serious) between two expert bodies is not at all unusual.  In  Shri  Sitaram
Sugar Co. Ltd. v. Union of India[5] the decision of the  Central  Government
was supported  by  the  recommendations  of  the  Tariff  Commission.  These
recommendations were criticized in some respects by the BICP.  Some  members
of the sugar industry accepted the views of  the  Central  Government  while
some did not. Considering the overall circumstances, the Constitution  Bench
observed  that  the  conclusions  of  the  Central  Government  are   expert
conclusions  which  were  not  shown  to   be   arbitrary,   discriminatory,
unreasonable or ultra vires. Reliance was placed upon the following  passage
from Railroad Commission of Texas v. Rowan & Nichols Oil Company[6]:
“Nothing  in  the  Constitution  warrants  a  rejection  of   these   expert
conclusions. Nor, on the basis of intrinsic skills and  equipment,  are  the
federal courts qualified to set their independent judgment on  such  matters
against that of the  chosen  State  authorities....  When  we  consider  the
limiting conditions  of  litigation  —  the  adaptability  of  the  judicial
process only to issues definitely circumscribed  and  susceptible  of  being
judged by the techniques and  criteria  within  the  special  competence  of
lawyers — it is clear that the Due Process Clause does not require the  feel
of the expert to the supplanted by an independent  view  of  judges  on  the
conflicting testimony and prophecies and impressions of expert witnesses”.
This observation is of even greater significance in the  absence  of  a  Due
Process Clause.”

97.   The feel of the expert is important, 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 to either the material utilized or  the  factors  considered  or
the weight attached to the materials and factors. In matters  pertaining  to
drug formulations, it is not only an issue of demand  and  supply  but  also
the ability of a common person to afford the formulation. At the same  time,
the manufacturer must also make some profit and be in a position  to  invest
in research  and  development.  There  simply  cannot  be  any  mathematical
precision in fixing the price of a commodity. More than  enough  elbow  room
or a play in the joints is required to be given in such matters –  and  even
then  the  price  fixing  authority  may  commit  an  error.  Once  this  is
appreciated,  it  will  be  realized  that  the  task  before  the   Central
Government in prescribing the norms was not easy.
Failure to consider the cost audit reports
99.   Learned counsel for Cipla contended that assuming  the  drug  industry
did not extend any cooperation in providing necessary data,  the  CARs  were
nevertheless material available and they could be and should have been  made
use of for recommending the norms by the Masood Committee  and  the  Jharwal
Committee to the Central Government. In other words, relevant  material  was
not considered.
100.  The value or utility of the CARs has  already  been  mentioned  above,
which is that the Masood Committee did not find  the  information  contained
in whatever CARs were  available  to  be  fully  reliable.   This  view  was
accepted by the Central Government. Even the Cost  Accounts  Branch  of  the
Department of Expenditure in the Ministry of Finance did not find  the  CARs
of particular use for the purposes of prescribing the  norms.  Additionally,
no study could be based entirely on the CARs. We must accept the opinion  of
expert bodies in this regard. We do not have any contrary expert opinion  on
the subject and must go by the existing expert  views.  Proceeding  on  this
basis, it would be incorrect on the  part  of  Cipla  and  indeed  the  drug
industry to say and contend that whatever information  is  required  by  the
Central Government for fixing the norms was already available  in  the  CARs
and nothing more need be supplied to the Central Government.
101.  Assuming the submission of Cipla and the drug industry to be  correct,
it would certainly not have been a problem at all for each company  to  fill
up  the  questionnaires  sent  by  each  of  the  Committees,  if  all   the
information required by the questionnaires was 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 to furnish information for  prescribing  the  norms,
there is certainly  a  moral  and  social  obligation  on  them  to  furnish
information so that appropriate norms could be notified not only  for  their
benefit but also for the benefit of  the  consumers.  The  preamble  to  the
Essential Commodities Act, 1955 cannot be forgotten. By not  furnishing  the
information required, the drug industry pushed the Central  Government  into
a corner leaving it with no option but to prescribe the norms on  the  basis
of available material and later re-notify the norms.
103.  It is also true that fixing the price of  formulations  based  on  the
norms prescribed under Paragraph  7  of  the  DPCO  1995  is  a  legislative
activity which the Central Government was obliged to carry out  on  its  own
research  and  assessment,  assuming  there  was  no  cooperation  from  the
manufacturers/formulators.  The efforts made by  the  Masood  Committee  and
the Jharwal  Committee  for  prescribing  the  norms  for  the  purposes  of
Paragraph 7 of the DPCO 1995 were  steps  leading  up  to  this  legislative
activity. It is nobody’s case that no preliminary steps were taken  or  that
no exercise was undertaken for arriving at appropriate  norms  -  the  steps
and exercise were in fact  undertaken  through  expert  Committees  but  the
material used in the exercise and the resultant Reports were  criticized  by
learned counsel appearing for Cipla.  We are of  the  view  that  given  the
circumstances that the two Committees were faced with and given the  virtual
non-cooperative attitude  of  the  drug  industry,  the  Central  Government
prescribed the norms and Cipla and the drug industry were obliged to  accept
them as notified without much ado. It cannot be that the drug industry  does
not  supply  necessary  information  and  data  to  the  expert   Committees
appointed by the Central Government and then blames the  Central  Government
for taking a decision without necessary information and data.
104.  The failure of the  drug  industry  to  extend  effective  cooperation
appears to be an endemic problem. A situation somewhat similar  to  the  one
that we are concerned with had arisen in Union of  India  v.  Swiss  Garnier
Life Sciences.[7]  In that decision, it  was  noticed  by  this  Court  that
communications were sent to the manufacturers/formulators  of  a  particular
formulation  to  provide  reasons  why  that  formulation  should   not   be
classified as a derivative of another formulation. 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.[8] 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  producer  or  importer  and  the  drug  was  sold  in  the   form   of
formulations, the statistics regarding the quantum of bulk drug utilized  in
such formulations and the value thereof must have been within the  knowledge
or reach of the writ petitioners and  there  is  no  good  reason  why  they
should withhold all this relevant information and  harp  on  the  ORG  data.
There is no need  to  resort  to  guesswork  when  the  actual  figures  are
available at the doorsteps of the respondents.”

106.  Be that as it may, our conclusion on this  aspect  of  the  matter  is
that the antecedent materials (the Reports) on the basis of which the  norms
were recommended and then prescribed under Paragraph 7 of the DPCO 1995  are
subject  to  lesser  judicial  scrutiny,  limited  perhaps   only   to   the
application   of   completely   erroneous   principles.   The   burden   for
demonstrating the application of completely erroneous  principles  is  heavy
as it is and it is heavier still if the antecedent material is  prepared  by
experts. The onus of discharging the heavy burden must necessarily  fall  on
the challenger, and Cipla has not been able to sustain the challenge.  There
can be and are differences of opinion but we cannot and will not  reconsider
the opinion of experts, particularly  in  matters  of  economic  affairs  or
other economy related issues unless there is extremely strong reason  to  do
so.
107.   We  end  this  discussion  with  a  conclusion  arrived  at  by   the
Constitution Bench in Shri Sitaram Sugar Co. Ltd. in  paragraph  49  of  the
Report:
“Where a question of law is at issue, the court may determine the  rightness
of the impugned decision on its own independent judgment.  If  the  decision
of the authority does not agree with that which the court  considers  to  be
the right one, the finding of law by the authority is liable  to  be  upset.
Where it is a finding of fact, the court examines  only  the  reasonableness
of the finding. When that finding is found to  be  rational  and  reasonably
based on evidence, in the sense that all relevant material  has  been  taken
into account and no irrelevant material has  influenced  the  decision,  and
the decision is one which any  reasonably  minded  person,  acting  on  such
evidence, would have come to, then judicial review is exhausted even  though
the finding may not necessarily be what the court would have come  to  as  a
trier  of  fact.  Whether  an  order  is  characterised  as  legislative  or
administrative or quasi-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. Corp. v. United States[9].  See  also  Associated  Provincial
Picture Houses Ltd. v. Wednesbury Corporation[10].” [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  Company  v.
United States of America.[11]
“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  exhausted  when  there  is
found  to  be  a  rational  basis  for  the  conclusions  approved  by   the
administrative body.” [Emphasis supplied]


108.  For the above reasons we disagree with the Allahabad  High  Court  and
hold that the various notifications issued under Paragraph  7  of  the  DPCO
1995 in 1999 and thereafter  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 were  issued  after  due  application  of  mind  and  based  on
available material duly examined by an expert body. The  notifications  were
not arbitrarily issued nor were they discriminatory in  any  manner  at  all
nor were they issued mechanically nor  could  it  be  said  that  they  were
issued without any application of mind.
Re-notification of norms
109.  Another facet of the submission of learned counsel for Cipla was  that
the same norms prescribed by the notification dated 13th  July,  1999  could
not have been notified mechanically year after year and the  fact  that  the
norms were simply re-notified from 2000 to 2003 is  a  clear  indication  of
non-application of mind by the Central Government to the issue at  hand.  In
response, the learned Solicitor General referred to  Shri  Malaprabha  Coop.
Sugar Factory v. Union of India. [12]  In that decision, it was  noted  that
the levy sugar prices for the 1975-76 sugar  season  were  notified  at  the
same level as those in the previous season.  This Court took the  view  that
the re-notification could not be faulted on grounds  of  arbitrary  exercise
of power for several reasons mentioned in paragraph 84  of  the  Report.  In
other words, the concept or principle of re-notification is not  unheard  of
and there is no illegality per  se  in  re-issuing  the  norms  without  any
change,  but  the  reasons  for  re-notification  ought  to  exist   –   re-
notification should not be a short-cut method to be routinely employed.
110.  What then are the reasons that prompted the Central Government to  re-
notify the norms prescribed by the notification dated 13th  July,  1999?  On
the one hand, there was virtual non-cooperation from the  drug  industry  in
providing information to the Central Government  despite  repeated  requests
and reminders even by expert Committees constituted for the purpose. On  the
other there was a perceived statutory obligation on the  Central  Government
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. Finally,  the  non-cooperation  of
the drug industry from October 1998 onwards  was  another  road  block.  The
overall attitude of the drug industry appears to be one of profit making  or
preserving commercial interests, while  the  concern  should  really  be  of
promoting consumer interest.  Faced  with  these  competing  interests,  the
Central Government sided with the consumer and cannot  be  faulted  for  it.
The Central Government did not act in a routine or mechanical manner in  re-
notifying the norms every  year  from  2000  onward.  In  our  opinion,  the
explanation  put  forward  by  the  learned   Solicitor   General   deserves
acceptance.
112.  We conclude that the re-notification of the prescribed  norms  in  the
period 2000 to 2003 was not mechanical or without any application  of  mind.
The materials were before the Central Government and there was no change  in
the content of the materials. If there was,  the  drug  industry  failed  to
effectively point it out as a result of their non cooperative  attitude.  We
also hold that re-notification  of  the  prescribed  norms  is  per  se  not
impermissible  and  in  the  present  case   it   was   justified   in   the
circumstances.
Challenge to the actual norms prescribed
113.  In  Prag Ice & Oil Mills it was held that  price  fixation  is  really
legislative in character  since  it  satisfies  the  tests  of  legislation.
Similarly, in Cynamide India it was held that price fixation is more in  the
nature of a legislative activity than in  any  other.   Price  fixation  may
affect manufacturers and producers or commodities but  those  who  are  most
vitally  affected  are  the   consumers.   Similarly,   in   Glaxosmithkline
Pharmaceuticals Ltd. v. Union of India[13] it was held that  price  fixation
by the Central Government under the DPCO is in the nature of  a  legislative
measure and the dominant object and purpose of such price  fixation  is  the
equitable distribution and availability of commodities at a fair  price.   A
similar view was expressed by a Constitution Bench of  this  Court  in  Shri
Sitaram Sugar Company Ltd. when it was  said:  “Price  fixation  is  in  the
nature of a legislative action even when it is based on  objective  criteria
founded on relevant material.”  In Saraswati Industrial  Syndicate  Ltd.  v.
Union of India[14] this Court was more specific when  it  said  that  “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.”
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
certainly strike down the retail price or the ceiling price so fixed by  the
Central Government on the ground  that  relevant  factors  were  ignored  or
irrelevant factors were taken into consideration.  No  such  allegation  was
made and no such contention was  advanced  by  learned  counsel  for  Cipla.
Therefore, we need not dwell on this aspect.
(ii) Yearly prescription of norms
116.  It may be recalled that prior to 1995, 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 were prescribed by notifications issued on 17th February,  1989
and 15th July, 1993 in exercise of powers conferred by Paragraph  6  of  the
DPCO 1987. When the DPCO 1995 was issued, it provided for  a  ‘transitional’
provision through Paragraph 8(5) and Paragraph 27 thereof.
117.  Paragraph 8(5) of the DPCO 1995 provides that the retail  price  of  a
scheduled formulation shall, until the retail price thereof is  fixed  under
the  DPCO  1995,  be  the  price  which  prevailed  immediately  before  the
commencement of the DPCO 1995.[15]  Paragraph 8 of the DPCO  1995  reads  as
follows:

“8. Power  to  fix  retail  price  of  scheduled  formulations.  –  (1)  The
Government may, from time to time, by order,  fix  the  retail  price  of  a
Scheduled formulation in accordance with the formula laid down in para. 7.

(2) Where the Government fixes or revises the price of any bulk  drug  under
the provisions of this Order and a manufacturer utilises such bulk  drug  in
his scheduled formulations he shall, within thirty days of such fixation  or
revision, make an application to  the  Government  in  Form  III  for  price
revision of all such formulations and the Government may,  if  it  considers
necessary, fix or revise the price of such formulation.

(3) The retail price of a formulation once fixed  by  the  Government  under
sub-paragraphs (1) and (2)  shall  not  be  increased  by  any  manufacturer
except with the prior approval of the Government.

(4) Any manufacturer,  who  desires  revision  of  the  retail  price  of  a
formulation 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 obtaining the prior approval of its price from the Government.”

Similarly, Paragraph 27 of the DPCO  1995  provides  that  any  notification
issued under the DPCO 1987, unless it is inconsistent  with  its  provisions
will be deemed to have been issued under the corresponding provision of  the
DPCO 1995. Paragraph 27 of the DPCO 1995 reads as follows:
“27. Repeal and saving.- (1) The  Drugs  (Prices  Control)  Order,  1987  is
hereby repealed.
     (2) Notwithstanding such repeal, anything done  or  any  action  taken,
including any notification or Order made, direction given, notice issued  or
exemption granted under the Drugs (Prices Control) Order, 1987, shall in  so
far as it is not inconsistent with the provisions of this Order,  be  deemed
to have been done taken, made, given, issued or granted,  as  the  case  may
be, under the corresponding provisions of this Order.”

Ex facie therefore, there is no error in  continuing  the  norms  prescribed
under the DPCO 1987 even after the promulgation of the DPCO  1995.  However,
the question is whether this arrangement can continue indefinitely?
118.  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.  (We were told by the  learned
Solicitor General that the year for prescribing the norms is  from  July  to
June of the following  year.   It  is  for  this  reason  that  the  various
notifications under Paragraph 7 of the  DPCO  1995  were  issued  in  July).
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.
119.  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.
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 Committee in  April  1995  precisely  for  this
purpose. However its work was stymied by the drug industry through its  non-
cooperation. It is true that notwithstanding the road block set  up  by  the
drug industry, the Central Government could very well  have  determined  and
prescribed the norms as required by  Paragraph  7  of  the  DPCO  1995.  Why
didn’t the Central Government do so?
122.  There are several reasons that can be culled out from  the  Report  of
the  Masood  Committee  for  the  Central  Government  not  determining  and
prescribing the norms in 1995 and  thereafter  for  the  next  three  years.
Firstly, according to the  Masood  Committee  the  drug  industry  had  been
provided a sufficient cushion by the acceptance of  the  recommendations  of
the Sankaran Committee. Under the circumstances continuing  with  the  norms
for conversion cost and packing  charges  prescribed  under  the  DPCO  1987
would not have disadvantaged the manufacturers/formulators in any manner.
123.  Secondly, the packing material ceilings  had  been  recently  upwardly
revised from 7th July, 1994 and  the  manufacturers/formulators  could  take
advantage of the cost of packing  material  on  actuals.  Surely,  this  was
beneficial to them.
124.  Thirdly, according  to  the  Masood  Committee  with  high  production
levels  and  better  capacity  utilization  as  well  as  new  technological
processes, the process loss on raw materials and packing material  ought  to
have come down. But since  the  drug  industry  did  not  provide  necessary
information through the questionnaire sent to  the  drug  industry  and  the
companies, an ad hoc reduction in the existing norm for process  loss  fixed
by the Sankaran Committee was not recommended by the Masood Committee.  This
too was to the advantage of the manufacturers / formulators.  Actually,  the
Masood Committee expressed the view that  the  existing  norms  for  process
loss on raw materials and packing materials was on the high side.
125.  Fourthly, the Masood Committee noted that  there  was  a  decrease  in
total formulation activity coming under price control  from  70%  under  the
DPCO 1987 to 50% under the DPCO 1995 and uniform  MAPE  of  100%  under  the
DPCO 1995 as against 75% and 100% MAPE under the DPCO 1987.  Even  this  was
advantageous to the manufacturers/formulators.
126.   Whichever  way  the  issue  is  looked  at,  it  is  clear  that  the
manufacturers/formulators were not put to any  disadvantage  in  the  retail
price fixed 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
different parts of the country. What is tragic is  that  even  today,  there
does not seem to be any sign of the Central Government taking any  steps  to
constitute a statutory National Drug Authority.
128.  But be that as it may, although several notifications  issued  between
1995    and     1999     were     collaterally     challenged     by     the
manufacturers/formulators, we were not shown any notification in  which  the
retail price or the ceiling price was varied to  their  detriment.  Assuming
there was such a notification, a  manufacturer/formulator  was  entitled  to
question the adverse revision by moving an application under the  provisions
of Paragraph 8(4) and Paragraph 22 of the DPCO  1995.  No  such  application
was moved by any manufacturer/formulator.  Paragraph  22  thereof  reads  as
follows:
“22. Power to review.- Any person aggrieved by any  notification  issued  or
order made under paras. 3, 5, 8, 9 or 10 may apply to the Government  for  a
review of the notification or order within  fifteen  days  of  the  date  of
publication of the notification in the Official Gazette or  the  receipt  of
the order by him, as the case may be,  and  the  Government  may  make  such
order on the application as it may deem proper :
      Provided that pending a decision by the Government on the  application
submitted  under  the  above  paragraph,  no   manufacturer,   importer   or
distributor, as the case may be, shall sell a bulk drug or  formulation,  as
the case may be, at a price exceeding the price fixed by the  Government  of
which a review has been applied for.”

It was contended that a revision could not be sought since  norms  were  not
fixed and for the purposes of challenging the retail price  or  the  ceiling
price fixed under Paragraphs 8 and 9 (as the case may be) of the  DPCO  1995
it was necessary to know the norms fixed.  We  propose  to  deal  with  this
issue a little later.
129.   A  question  of  seminal  importance  arises,  namely,  whether   the
legislative  activity  of  prescription  of  norms  every  year  is  at  all
necessary even if there is no occasion to change or modify the retail  price
of a formulation. Is the exercise of determining the norms  by  the  Central
Governments required to be mechanically carried out every year as a  ritual?
 Perhaps not. It is not necessary to revise  the  retail  price  or  ceiling
price of every formulation every year – and if there  is  no  such  mandate,
then it must follow that there is no mandate to prescribe  the  norms  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 or more frequently.
131.  It was also contended by learned counsel for one  of  the  respondents
before us that there was a qualitative difference between the DPCO 1987  and
the DPCO 1995 in as much as under the DPCO 1987 the norms were  required  to
be prescribed from time to time under Paragraph 6 thereof.  However, as  far
as the DPCO 1995 is concerned the norms were required to be prescribed on  a
yearly basis under  Paragraph  7  thereof.   The  submission  was  that  the
principles known as Heydon’s mischief rule[16] are  clearly  applicable  and
there was a conscious decision by the  Central  Government  to  switch  over
from prescribing the norms from time to  time  to  fixing  the  norms  on  a
yearly basis.  Since the norms were not fixed on a yearly  basis  under  the
DPCO 1995, the  retail  prices  fixed  by  the  Central  Government  on  the
formulations on the basis of Paragraph 7 of the DPCO 1995 were  illegal  and
liable to be struck down.
132.  What was the mischief, if any, sought  to  be  remedied?  Nothing  has
been told to us in this regard by learned counsel. Given the scheme  of  the
DPCO 1995 there was no mandate of prescribing the norms  under  Paragraph  7
of the said DPCO every year. We therefore merely  note  the  submission  for
whatever it is worth.
(iii) Failure to prescribe the norms for cost of packing material
133.  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. We may draw attention to the notification  dated  17th  February,
1989 followed by the notification dated 15th July, 1993  both  issued  under
Paragraph 6 of the DPCO 1987 in this regard. Neither notification  made  any
provision for cost of packing material as a  norm.  The  notification  dated
17th February, 1989 prescribed 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.
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.
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 necessity of fixing the cost  of  packing  material  as  a
norm for the purposes of Paragraph 7 of the DPCO 1995 and that there was  no
fatal error in the notifications issued under Paragraph 7 of the  DPCO  1995
from 1999 onward. This also adds to  our  conclusion  that  prescribing  the
norms every year under Paragraph 7 of the  DPCO  1995  was  a  discretionary
exercise.
136.  As mentioned above, we can quite understand if the  formula  given  in
Paragraph 7 of the DPCO 1995 is not  strictly  adhered  to  by  the  Central
Government while working out the retail price of a formulation. But  if  the
drug industry is itself quite  content  with  being  given  the  benefit  of
actuals in material cost rather than having a norm  fixed  in  that  regard,
then there is no obligation on us to completely upset  the  apple  cart  and
quash a  few  dozen  notifications  at  the  behest  of  only  a  couple  of
respondents.  If we do so, we would  be  acting  to  the  detriment  of  the
entire drug industry (except one – and we must mention that not  many  other
manufacturers and formulators are before us), but we would also  provide  no
advantage to the consumers who have already purchased the formulations  more
than a decade ago and have no hope of getting a refund  on  their  purchase.
Additionally, we would really be serving no public or societal  interest  in
quashing a few dozen notifications under these circumstances.
137.  We may mention en passant that the ceiling price fixed by the BICP  on
7th July, 1994 and thereafter revised  by  the  NPPA  in  February  1998  in
respect of packing materials has not been questioned (let alone  challenged)
by anybody.
(iv) Other submissions
138.  It was contended  by  learned  counsel  appearing  on  behalf  of  Dr.
Reddy’s Laboratories Ltd. that the retail price or the ceiling  price  of  a
formulation could not have been fixed  by  the  Central  Government  without
first fixing the maximum sale price under Paragraph 3 of the  DPCO  1995  of
the bulk drug utilized in the formulation.  We are  unable  to  accept  this
submission.   In the first place, there is  no  obligation  on  the  Central
Government to fix the maximum sale price of every bulk drug, whether  it  is
in the First Schedule to the DPCO 1995 or not.  In fact, if a bulk  drug  is
not in the First Schedule to the DPCO 1995 the  Central  Government  is  not
empowered to fix its maximum sale price. There could  also  be  a  situation
where a formulation consists of two 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 inclined to take  this  argument  with  any  degree  of  seriousness
particularly since it seems to suggest that  the  Central  Government  acted
with a mala fide intent.  There is no warrant for such an assumption and  no
such allegation or averment has been made in the pleadings. The issuance  of
a notification under Paragraph 9 of the DPCO 1995 is a legislative  exercise
of power and to say that it was resorted to for denying the  benefit  of  an
exemption to small scale  industries  can  hardly  be  given  any  credence.
However, if the submission was intended to convey the  difficulty  faced  by
small scale industries, it can hardly be helped. There  is  nothing  in  the
DPCO 1995 to suggest that a small scale industry is kept out of  the  rigour
of the DPCO 1995. It is equally bound by any retail price or  ceiling  price
fixation by the Central Government.
140.  It was then contended on behalf of the manufacturers/formulators  that
the delegate of a power cannot travel beyond  its  authorization.   Reliance
in  this  regard  was  placed  on   V.K.   Ashokan   v.   Assistant   Excise
Commissioner[17] and  District  Collector,  Chittoor  v.  Chittoor  District
Groundnut Traders Association.[18]  There  can  be  no  dispute  about  this
proposition.  It was further contended that  if  the  delegate  exceeds  the
powers conferred upon it by the principal, then  the  order  passed  by  the
delegate is void ab initio and cannot even be  ratified.   In  this  regard,
reliance  was  placed  on  Marathwada  University  v.  Seshrao  Balwant  Rao
Chavan.[19] The issue in the present case is  not  that  the  delegate  (the
Central Government) had exceeded its jurisdiction - the issue  is  that  the
Central Government failed to exercise the power vested in it by Paragraph  7
of the DPCO 1995.  It is this that is under challenge and not  the  exercise
of power in excess of jurisdiction.  The decisions cited on  behalf  of  the
manufacturers/formulators in this regard are therefore not  quite  relevant.
In any event, we have already dealt with the issue of the purported  failure
of the Central Government to comply with the requirement of prescribing  the
norms under Paragraph 7 of the DPCO 1995 and repetition is not necessary.
141.  We may mention that relying upon Associated Provincial Picture  Houses
Ltd. v. Wednesbury Corporation,[20] Mayor &  C  Westminster  Corporation  v.
London and North Western Railway,[21] Barium Chemicals Ltd. v.  Company  Law
Board[22] and State of U.P. v. Renusagar Power  Co.  [23]  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 Paragraph 7 of  the  DPCO
1995 and fixes the retail price or ceiling  price  of  formulations  without
following the formula laid down, the  notification  issued  by  the  Central
Government under Paragraph 8 or Paragraph 9 of the DPCO 1995  (as  the  case
may be) is liable to quashed as being contrary to law. However, no  instance
has been pointed out to us compelling  us  to  use  our  power  of  judicial
review and quash the notifications under consideration.
Alternative remedy
143.  The learned Solicitor General was quite  vehement  in  his  submission
that if any manufacturer or formulator was aggrieved by the  fixing  of  any
the retail  price  or  ceiling  price  of  any  formulation,  there  was  an
alternative remedy available in the DPCO 1995 to  ventilate  and  articulate
the grievance. There is no reason why no one actually  sought  any  revision
or review of any of the price notifications before us. In  this  context  it
was pointed out that several constituents of the  drug  industry  had  taken
resort to alternative procedures (including Cipla) and therefore it  is  not
as if the alternative remedy is illusory.
144.  In response, it was contended  that  there  was  hardly  any  material
before Cipla to meaningfully  resort  to  the  alternative  remedy  provided
under the DPCO 1995. Additionally, the  norms  were  not  prescribed  on  an
annual basis and in the absence of the norms it was not possible for  anyone
to make an effective case for revision or review  of  any  retail  price  or
ceiling price notification. Reference was made to Form  III  in  the  Second
Schedule to the DPCO 1995.
145.  Form III is a Form of application for  approval  or  revision  of  the
price of scheduled formulations. This requires,  in  paragraph  13  thereof,
information relating to the break-up of the retail price of  a  formulation.
Our attention was drawn  to  sub-paragraph  (b)  [Conversion  Cost  (as  per
norms)] and sub-paragraph (c) [Packing Material Costs (Per Sl. No. 15 or  as
per norms)]. The submission was that an effective application could  not  be
made without the norms being prescribed. As mentioned above,  the  norm  for
conversion  cost  was  prescribed  first  by  the  notification  dated  17th
February, 1989 and then by the  notification  dated  13th  July,  1999  (and
subsequent notifications). It is difficult to  accept  the  submission  that
despite these notifications a manufacturer or formulator was unaware of  the
norms for conversion cost. As far as the norm 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 this,  it  was
held by this Court in paragraph 31 of the Report as follows:
“………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 to the notice  of  the  Government  in  their  applications  for
review. The learned counsel argued that they  were  unable  to  bring  these
facts to the notice of the Government as they were not furnished  the  basis
on which the prices were fixed. On the other hand, it has been  pointed  out
in the counter-affidavits  filed  on  behalf  of  the  Government  that  all
necessary and required information  was  furnished  in  the  course  of  the
hearing of the review applications and there was no  justification  for  the
grievance that particulars were not furnished. We  are  satisfied  that  the
procedure  followed  by  the  Government   in   furnishing   the   requisite
particulars at the time  of  the  hearing  of  the  review  applications  is
sufficient compliance with the demands of fair  play  in  the  case  of  the
class of persons claiming to be affected by the fixation  of  maximum  price
under the Drugs (Prices Control) Order.” [Emphasis supplied by us].”

We have no doubt that if  any  manufacturer  or  formulator  had  taken  the
trouble of preferring  a  revision  or  review  application,  all  necessary
material would have been made available to the complainant for an  effective
representation. We are satisfied that none of  the  parties  before  us  was
precluded  by  circumstances  from  preferring  a  revision  or  review  for
corrective measures in relation to the retail price or ceiling price of  any
particular formulation – in fact, we  are  told  by  the  learned  Solicitor
General that some of them did.
147.  Strictly speaking, in view of the availability of an  alternative  and
efficacious remedy available under the DPCO 1995 read with the  decision  of
this  Court  in  Cynamide  India  Ltd.  the  writ  petitions  filed  by  the
manufacturers and formulators before us ought not to have  been  entertained
by the concerned High Courts, but we leave it at that.
Forum shopping
148.  The learned Solicitor General  submitted  that  Cipla  was  guilty  of
forum shopping inasmuch as it had filed petitions in the Bombay High  Court,
the Karnataka High Court and also an affidavit in the Delhi High Court as  a
member of  the  Bulk  Drug  Manufacturers  Association  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 others.[24]  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
that this Court ascertained the views of the child and found  that  she  did
not want to even talk to her adoptive parents and therefore the  custody  of
the child granted by the Delhi High Court to the respondent-mother  was  not
interfered with.  The decision of this Court  is  on  its  own  facts,  even
though it is a classic case of forum shopping.
151.  In Arathi Bandi v. Bandi Jagadrakshaka Rao[25] this Court  noted  that
jurisdiction in a Court is not attracted by the  operation  or  creation  of
fortuitous circumstances.  In that case, circumstances were created  by  one
of the parties to the dispute to confer jurisdiction on  a  particular  High
Court. This was frowned upon by this Court by observing that  to  allow  the
assumption of jurisdiction in created circumstances  would  only  result  in
encouraging forum shopping.
152.  Another case of creating  circumstances  for  the  purposes  of  forum
shopping was World Tanker Carrier Corporation v. SNP Shipping Services  Pvt.
Ltd. and others[26] wherein it was observed  that  the  respondent/plaintiff
had made a deliberate  attempt  to  bring  the  cause  of  action  namely  a
collision between two vessels on the high seas within  the  jurisdiction  of
the Bombay High Court.  Bringing one of the vessels to Bombay  in  order  to
confer jurisdiction on the Bombay High Court  had  the  character  of  forum
shopping rather than anything else.
153.  Another form of forum shopping is taking advantage of a view  held  by
a particular High Court in contrast to a  different  view  held  by  another
High Court. In Ambica Industries v. Commissioner of Central  Excise[27]  the
assessee was from Lucknow. It challenged an order  passed  by  the  Customs,
Excise and Service Tax Appellate Tribunal  (the  CESTAT)  located  in  Delhi
before the Delhi High Court.  The CESTAT had jurisdiction  over  the  States
of Uttar Pradesh, NCT of Delhi and Maharashtra. The  Delhi  High  Court  did
not entertain  the  proceedings  initiated  by  the  assessee  for  want  of
territorial jurisdiction. Dismissing the assessee’s appeal this  Court  gave
the example of an  assessee  affected  by  an  assessment  order  in  Bombay
invoking the jurisdiction of the Delhi High Court to take advantage  of  the
law laid down by the Delhi High Court or an assessee affected  by  an  order
of assessment made at Bombay invoking  the  jurisdiction  of  the  Allahabad
High Court to take advantage of the law laid down  by  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 another[28] 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  another  v.
State of Uttar Pradesh and others[29] it was  noticed  by  this  Court  that
four writ applications were filed by a litigant  and  although  the  prayers
were apparently different, the core issue in  each  petition  centred  round
the recovery of the amount advanced by the  bank.   Similarly,  substituting
some petitioners for  others  with  a  view  to  confer  jurisdiction  on  a
particular Court would also amount  to  forum  shopping  by  that  group  of
petitioners.
156.  Finally and more  recently,  in  Supreme  Court  Advocates  on  Record
Association v. Union of India (Recusal Matter)[30]  Justice  Khehar  noticed
yet another form of forum shopping where a litigant makes allegations  of  a
perceived conflict of interest  against  a  judge  requiring  the  judge  to
recuse from the proceedings so that  the  matter  could  be  transferred  to
another judge.
157.  The decisions referred to clearly lay  down  the  principle  that  the
Court is required to adopt a functional test vis-à-vis  the  litigation  and
the litigant.   What  has  to  be  seen  is  whether  there  any  functional
similarity in the proceedings between  one  Court  and  another  or  whether
there is some sort of subterfuge on the part of  a  litigant.   It  is  this
functional test that will determine  whether  a  litigant  is  indulging  in
forum shopping or not.
158.  Keeping all these examples in mind  with  several  other  nuances  and
also keeping the functional test  in  mind,  we  have  examined  the  relief
claimed by Cipla in the different High Courts and find  that  they  have  no
substantive connection whatsoever with the relief claimed in  the  Allahabad
High Court.
159.  Be that as it may, we  have  examined  the  submissions  made  by  the
learned Solicitor General in respect of each of the writ petitions filed  by
Cipla.
160.  The Bulk Drug Manufacturers Association had filed W.P.   No.  5578  of
1997 in the Delhi High Court in which it had challenged the inclusion  of  8
bulk drugs in the First Schedule of the DPCO 1995.   Among  the  bulk  drugs
whose inclusion was challenged were Salbutamol, Theophylline,  Ciprofloxacin
and Norfloxacin.
161.   The  Delhi  High  Court  required  the  members  of  the  Bulk   Drug
Manufacturers Association to file an affidavit stating that  they  would  be
bound by the orders passed by  the  Delhi  High  Court.   Pursuant  to  this
direction, Cipla filed an affidavit in the Delhi High  Court  on  24th  May,
1999 stating that any final decision taken on the question of the  inclusion
or exclusion of Salbutamol and Theophylline in W.P. No.5578 of 1997 will  be
binding on Cipla subject to  any  appeal  preferred  thereon.  It  was  also
disclosed 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 as demand notices issued to Cipla were under challenge.
166.  We find that almost all  the  notifications  under  challenge  in  the
Karnataka High Court were also  the  subject  matter  of  challenge  in  the
Allahabad High Court. However, Cipla  had  disclosed  before  the  Allahabad
High Court that it had  filed  writ  petitions  before  the  Karnataka  High
Court. There was therefore no concealment of any facts  by  Cipla.  We  also
find that the consequence of allowing the  three  writ  petitions  filed  by
Cipla  in  the  Bombay  High  Court  would  have  had  an  impact   on   the
notifications challenged in the Allahabad High Court, but that impact  would
have been collateral and consequential. We are of opinion that  under  these
circumstances, Cipla ought to have disclosed the filing  of  writ  petitions
in the Bombay High Court, but at this stage we do not think  it  appropriate
to non-suit Cipla only on this ground.
167.  The proceedings in the  Allahabad  High  Court  were  initiated  as  a
result of a show cause notice issued to Cipla. No similar show cause  notice
and no similar factual circumstances  existed  in  any  of  the  other  High
Courts in which Cipla had initiated proceedings.  It cannot,  therefore,  be
said that Cipla had indulged in forum shopping in any manner whatsoever.
Two comments
168.  Before  parting  with  these  appeals,  we  would  like  to  make  two
comments: Firstly, with regard to the manner in which  the  Union  of  India
has handled the litigation. We find  that  by  and  large,  very  little  or
scanty material was placed by the Union of India before the  concerned  High
Courts, particularly the Allahabad High Court. On the  other  hand,  several
volumes  of  documents  have  been  filed  in  this  Court,   though   after
permission. Such a practice deserves discouragement and we do so. There  are
several reasons for this. It tends to degrade the importance of  proceedings
in the High Court and could subsequently  embarrass  the  High  Court  which
might inadvertently base its decision on insufficient material resulting  in
the possibility of an incorrect decision which is liable to  be  set  aside.
It might also cause serious prejudice to a litigant because it  is  for  the
first time in this Court that the entire material is  made  available  to  a
litigant placing him/her  at  a  disadvantage  in  dealing  with  issues  of
importance. It certainly places an unnecessary and totally avoidable  burden
on this Court which is required to deal 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
should not have the effect of staying the implementation of  a  notification
fixing the price of a formulation under the  DPCO.  That  would  be  against
public interest and, therefore, ought not to be made by a  Court  unless  it
is satisfied that no public interest is going to be served.   This  is  what
this Court had to say in paragraphs 37 and 38 of the Report:
“We notice that in all  these  matters,  the  High  Court  granted  stay  of
implementation of the notifications fixing the maximum prices of bulk  drugs
and the retail prices of formulations. We think  that  in  matters  of  this
nature, where  prices  of  essential  commodities  are  fixed  in  order  to
maintain  or  increase  supply  of  the  commodities  or  for  securing  the
equitable distribution and availability at fair prices of the commodity,  it
is not right that the court  should  make  any  interim  order  staying  the
implementation of the notification fixing the prices. We consider that  such
orders are against the public interest and ought not to be made by  a  court
unless the court is satisfied  that  no  public  interest  is  going  to  be
served.
………

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.”

171.  Under these circumstances, we are clearly of the view that in  matters
where public interest is involved, the Court  ought  to  be  circumspect  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.
 172. We would also like to draw the attention  to  the  Drug  Policy,  1994
which mentions that as far as the drug  industry  is  concerned,  there  are
about 250 large units and about 8000 small scale units in operation.   These
units produce about 350 bulk drugs, and as  we  have  mentioned  above  more
than 2000 formulations.  The  Drug  Policy,  1994  also  mentions  that  the
production of bulk drugs in 1993-94 is in the region of Rs.1320  crores  and
for the same period the production of formulations is in the region  of  Rs.
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:
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.

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  they  valid  in
law? Our answer is that the notifications are  valid  and  were  not  issued
mechanically or without  any  application  of  mind  and  that  it  was  not
necessary to re-determine the norms every year.

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 norm for cost of packing material as required  by  Paragraph
7 of the Drugs (Prices Control) Order, 1995 are valid in law? Our answer  is
in the affirmative.


Whether fixing the retail price of a formulation under Paragraph  8  of  the
Drugs (Prices Control) Order, 1995 without first fixing the sale price of  a
bulk drug under Paragraph 3  of  the  Drugs  (Prices  Control)  Order,  1995
utilized in the manufacture of a formulation is valid in law? Our answer  is
in the affirmative.

174.  In view of the above, the appeals filed by  the  Union  of  India  are
allowed. The impugned judgments and orders are set aside. The appeals  filed
by Dr. Reddy’s Laboratories Ltd. are dismissed. No costs.


                                                              …....………………….J

                                                            (Madan B. Lokur)


                                                              .....………………….J

New Delhi;
             (R.K. Agrawal)
October  21, 2016


-----------------------
[1]   [2]    (2003) 7 SCC 1
[3]

      [4]    (2003) 1 SCC 341
[5]

      [6]    (1987) 2 SCC 720
[7]   [8]    (1978) 3 SCC 459
[9]   [10]   (1990) 3 SCC 223
[11]  [12]   311 US 570, 85 L Ed 358, 362
[13]  [14]   (2013) 8 SCC 615
[15]  [16]   (2003) 7 SCC 1
[17]  [18]   307 US 125 (1939) : 83 L ed 1147
[19]  [20]   (1948) 1 KB 223 : (1947) 1 All ER 498
[21]  [22]   292 US 282, 286-287 : 78 L ed 1260, 1265
[23]  [24]   (1994) 1 SCC 648
[25]  [26]   (2014) 2 SCC 753
[27]  [28]   (1974) 2 SCC 630
[29]  [30]   “Retail price includes ceiling price (fixed under  Paragraph  9
of the DPCO 1995).  Retail price is defined in Paragraph 2(s)  of  the  DPCO
1995 as follows: “retail price” means the retail price of a drug arrived  at
or fixed in accordance with the provisions of  this  Order  and  includes  a
ceiling price.”
[31]  [32]   Heydon’s Case, Neutral Citation Number: [1584] EWHC Exch J36
[33]  [34]   (2009) 14 SCC 85
[35]  [36]   (1989) 2 SCC 58
[37]  [38]   (1989) 3 SCC 132
[39]  [40]   (1948) 1 KB 223 : (1947) 1 All ER 498
[41]  [42]   1905 AC 426,430 : 93 LT 143
[43]  [44]   1966 Supp SCR 311
[45]  [46]   (1988) 4 SCC 59
[47]  [48]   (1999) 8 SCC 525
[49]  [50]   (2013) 15 SCC 790
[51]  [52]   (1998) 5 SCC 310
[53]  [54]   (2007) 6 SCC 769
[55]  [56]   (2014) 16 SCC 501
[57]  [58]   (2008) 1 SCC 560
[59]  [60]   (2016) 5 SCC 808


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