ISHAAN LABS PVT LTD vs. UNION OF INDIA REP BY THE SECRETARY

1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 06th DAY OF AUGUST, 2012 PRESENT THE HON’BLE MR.VIKRAMAJIT SEN, CHIEF JUSTICE AND THE HON’BLE MR.JUSTICE ARAVIND KUMAR Writ Petition No. 6585/2004 (GM-RES) Between: 1 Ishaan Labs Pvt.Ltd A company incorporated under the Companies Act, 1956 having its registered office and Works at 137/B, New No.11/3, 4th Main Road, Industrial Town, Rajajinagar Bangalore-560 044 Represented by its Director, Sri A.B.Ram Kumar S/o late Sri A Balagurunath 36 years. 2 Sri A.B.Ram Kumar S/o late Sri A Balagurunath Aged 36 years Having his office at No.137/B, New No.11/3, 4th Main Road Industrial Town Rajajinagar Bangalore-560 044 .. Petitioners (By Sri K N Phanindra, Advocate for Sri. B.S. Shankarnarayan, Advocate) And: 1 Union of India Represented by the Secretary Dept. of Chemicals and Petrochemicals Shastri Bhavan

2 New Delhi – 110 001 2 The Director National Pharmaceutical Pricing Authority, Having its office at 3rd/5th floor YMCA Cultural Centre Building 1, Jaisingh Road New Delhi – 110 001 ... Respondents (By Sri Y Hariprasad, CGC) This Writ Petition is filed under Articles 226 and 227 of the Constitution of India praying to direct the respondents to fix the norm for calculating the packing material cost as required under Paragraph 7 of DPCO, 1995 and etc.,. This Writ Petition having been heard and reserved for orders, this day, ARAVIND KUMAR J., pronounced the following: ORDER ARAVIND KUMAR J. Petitioners are seeking for declaration that notification dated 11-7-2003 –Annexure-H is erroneous, bad in law and contrary to Drug (Prices) Control Order, 1995 (DPCO) and for quashing of the said notification and for a further direction to the respondents to fix the norms for calculating the packing material costs as required under Paragraph 7 of DPCO -1995 and to fix/revise the norms for calculating the process loss, conversion costs and packing charges as required under Paragraph 7 of DPCO-1995.

3 Further declaration is also sought that notification dated 3-9-2003, Annexure-A which fixes the ceiling prices in respect of “Glipizide” Formulations as contrary to provisions of DPCO-1995 and seek for quashing of the same. 2. Petitioner No.1 is a company incorporated under the Companies Act, and is registered as a small scale industrial unit under the provisions of Industrial Development Regulations Act. It is contended in the writ petition that it carries on the business of manufacture and sale of drugs and other pharmaceutical products. It is also engaged in the manufacture and selling of both single and multiple ingredient Formulations containing bulk drug ‘Glipizide’. Petitioner commenced commercial production in 1998. Petitioner interalia manufactures and sells both single and multiple ingredient Formulation containing bulk drug Glipizide and prior to 03.09.2003. Petitioner could sell the said product freely as no ceiling price had been fixed. 3. The National Pharmaceutical Pricing Authority (hereinafter referred to as ‘NPPA’ for brevity) has issued a notification/order S.O.1019(E) by virtue of powers

4 conferred under sub Paragraphs (1) & (2) of Paragraph 9 and Paragraph 11 of Drugs (Prices Control) Order, 1995 (referred to as ‘DPCO -1995’ hereinafter) by fixing the ceiling price in respect of Glipizide Formulation. This notification is under challenge. NPPA had also notified the norms for conversion cost, packing charges and process loss by notification No.S.O.518 (E) dated 13th July 1999 which was duly published in the Gazette in compliance of Paragraph 7 of DPCO-1995 and validity of said notification was extended from time to time and in 2003 by notification/order dated 11th July 2003 the notification dated 13.07.99 came to be extended vide Annexure-H and same is also under challenge in this Writ Petition. 4. We have heard the learned Advocates appearing for the parties and perused the writ papers together with statement of objections. 5. The contention of learned counsel appearing for petitioners is that in terms of DPCO - 1995 the Central Government can fix ceiling price in respect of a scheduled Formulation only in accordance with formula laid down in Paragraph 7 of DPCO - 1995 and the ceiling price fixed in respect of Glipizide Formulation is contrary to the formula

5 laid down in Paragraph 7 and therefore illegal and arbitrary. He would elaborate his submissions by contending under Paragraph 7 of DPCO - 1995, the Government is required to fix norms for calculating the process loss, conversion costs, packing material costs and for packing charges on year to year basis by notifying the same in Official Gazette and contends that before fixing a ceiling price, such norms are required to be notified and then only these charges are to be calculated before fixing ceiling price and if ceiling price is fixed without these norms, it would be contrary to DPCO - 1995. It is further contended that retail price has been fixed without taking into account the cost factor pertaining to packing materials which was required to be computed after duly notifying and challenge to the impugned notification is laid on the ground that year after year retail price is fixed without any change right from the year 1999 and without independently collecting various data under the different heads and then arriving at the retail price in parity with contemporary pricing norms is erroneous; that first respondent has failed to notify the norms under various heads as contemplated under Paragraph 7 of DPCO-1995 as such, the formula deviced by the respondent is wrongly applied year after year

6 and fixation of price made in 1999 has not been revised despite wide range increase in the Indices; the packing material cost which had to be taken into account has been totally excluded while notifying ‘Glipizide’ Formulation under impugned notification; respondents have failed to take into consideration the disparities pointed out by Organisations of pharmaceutical producers of India and Indian Drug Manufacturers’ Association and sale of said product as per ceiling price would affect industrialists like petitioners. On these grounds petitioners seek for allowing the writ petition. 6. Per contra, learned counsel appearing for respondents have denied the averments made in the writ petition and substantiate the impugned notification which according to the respondents was issued to ensure equitable distribution and supply of essential commodities to the public at affordable and reasonable prices under the provisions of DPCO – 1995 which is issued in exercise of the power conferred by section 3 of the Essential Commodities Act, 1955. He further contends that under DPCO - 1955, NPPA has been empowered to fix the price of a scheduled bulk drugs and its related Formulations under

7 Paragraphs 3, 8 and 9 of DPCO - 1955. Further contention is that prices of scheduled bulk drugs and its related Formulations are to be fixed as per formula prescribed under Paragraph 7 of DPCO – 1995 and accordingly it has been fixed. Respondents contend that Government of India constituted a High Power Committee in August, 1995 to study and revise the said norms and a questionnaire was sent to various companies calling for information and inspite of such request, no information was furnished by the manufacturers and as such it is contended that said Committee after considering all aspects such as latest technology, high capacity, better savings and minimum production losses came to a rational conclusion by taking into consideration possible cushioning in the existing norms which more than offsets inflation. It is further contended that for a second time in October, 1998 to revise the said norms, revision was undertaken and the pharmaceutical industry including the associations were called upon to furnish information and they did not furnish the requisite data and as such, keeping in view the interest of the industry respondent No.2 granted 4.5% increase in each case by revising the said norms and notifying it in July, 1999. It is contended that unless the industry

8 furnishes the requisite data relating to conversion costs, packing charges and process loss, same cannot be revised and norms for these categories though notified in July 1999, 2000 and 2001 it could not be revised since cost audit reports of various major pharmaceutical companies were found inadequate and details were not forthcoming. On these amongst other grounds raised in the statement of objections, respondents pray for rejection of the writ petition. 7. Learned counsel appearing for petitioner by way of reply would bring to our notice the judgment rendered by the Division Bench of High Court of Judicature at Allahabad, dated 3-3-2004 in Civil Misc.Writ petition 41214/2003 in the matter of M/s.Cipla Limited and Another vs. Union of India and Others and contends that similar notifications have already been quashed by the said Court and prays for similar orders being passed in the present writ petition. The learned Central Government Standing Counsel would hasten to add that respondent has challenged the said order by Special Leave Petition and it is pending before Hon’ble Apex Court and as such he seeks for dismissing the writ petition.

9 8. Having heard the learned Advocates appearing for the parties, we are of the considered view that following points arise for our consideration: (1) Whether this Court in exercise of extraordinary jurisdiction of judicial review can interfere with the price fixation of medical products by the respondent-authorities? (2) If the answer to this question is held in the affirmative; whether the impugned notifications are to be sustained or set aside? (3) What order? BRIEF HISTORY 9. DPCO – 1995 came to be promulgated by Central Government in exercise of power conferred under Section 3 of the Essential Commodities Act with the primary object of ensuring essential commodities are available to the consumers at a reasonable and fair price. Under DPCO - 1995, respondents are empowered to fix and notify the maximum sale price of the scheduled bulk drugs and retail price of the related Formulations under Paragraphs 3, 8 & 9 respectively. Sale of such essential commodities above the notified price attracts penalty under DPCO-1995.

10 Every manufacturer or importer of the scheduled bulk drugs/Formulations has to adopt the price fixed/notified by the Government of India from time to time within 15 days from the date of notification in the Official Gazette as prescribed under Paragraph 14(1) of DPCO-1995. In addition to the same, they are required to issue price list, supplementary list to the dealers, State Drug Controller and the Government by indicating reference to such price fixation or revision. 10. In the instant case, the NPPA by virtue of powers conferred under sub-Paragraphs (1) and (2) of Paragraphs 9 & 11 of DPCO – 1995 read with S.O.637(E) dated 4-9-1997 has fixed the price of Glipizide drug as specified in column No.5 as ceiling price exclusive of excise duty and local tax under notifications dated 3-9-2003 –Annexure-A. The NPPA had notified the norms for conversion cost, packing charges and process loss by notification No.S.O.578(E) dated 13.07.99 and duly gazetted the same as required under Paragraph 7 of DPCO-1995 vide Annexure-D. Since the norms have to be fixed from year to year under Paragraph 7 of DPCO-1995, NPPA by notifications issued periodically extended the validity of notification dated

11 13.07.99 by further notifications/orders for the years 2000, 2001, 2002 and 2003.

Under notification dated 11.07.2003 the norms for conversion cost, packing charges and process loss issued on 13.07.99 was extended with immediate effect vide Annexure-H which is also impugned in the present writ petition. 11. Before addressing the points formulated by us hereinabove, we are of the view that it would be necessary to look into the judgment rendered by the Division Bench of High Court of Judicature, Allahabad in the case of M/s.CIPLA LIMITED referred to supra since similar notifications which were under consideration have already been quashed. A perusal of the said judgment would go to show that after examining the various provisions of the DPCO-1995 and the contentions raised thereunder by the drug manufacturers on the one hand and the NPPA on the other hand, has been surmised by the learned Division Bench as under: In our opinion, fairness also requires that before fixing the price every year, representations of the pharmaceutical industries should be considered.

12 In fact, the Division Bench of Allahabad High Court in CIPLA’s case has relied upon the decision of Punjab & Haryana High Court in MARTIN AND HARRIS LABORATORIES LTD & ANOTHER vs. UNION OF INDIA & OTHERS reported in AIR 2002 P & H 309 to agree with the decision of Punjab & Haryana High Court by holding that unless the price of bulk drugs is fixed under Paragraph 3 of DPCO of 1995 it is not possible to properly fix the price of the scheduled Formulation because Formulation is made out of that bulk drug. 12. Being conscious of the fact that both these matters are now pending before Hon’ble Supreme Court and there being no order of stay passed by Hon’ble Apex Court for adjudicating this writ petition or any other order having been passed, we find no impediment for this writ petition being taken up for disposal. Learned Advocates appearing for the parties have fairly admitted that no order of stay has been passed by Apex Court which prevents this Court from taking up the present writ petition. Accordingly, we proceed to adjudicate the points formulated hereinabove.

13 13. The learned Advocates appearing for the parties have in extenso referred to various Paragraphs of DPCO- 1995 by reiterating their respective contentions raised in their pleadings and as such the relevant Paragraphs which would have bearing on the points formulated by us for being adjudicated, they are extracted herein below: “2. DEFINITIONS In this order, unless the context otherwise requires- ………… (c) “Ceiling price” means a price fixed by the Government for Schedules Formulations in accordance with the provisions of Paragraph 9; …………. (s) “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; ………….. (v) “Scheduled Formulation” means a Formulation containing any bulk drug specified in the First Schedule either individually or in combination with other drugs, including one or more than one drug or drugs not specified in the First Scheduled except single ingredient Formulations based on number of drugs specified in the First Scheduled and sold under the generic name; …………..

14 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) + E.D Where- “R.P.” means retail price; “M.C” means material cost and includes the cost of drugs other than 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 the 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 charge is 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 Expense) means all costs incurred by a manufacturer from the stage of ex factory cost to retailing and includes trade margin and margin for the

15 manufacturer and it shall not exceed 100% of 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 importers profit which will not exceed 50% 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. ……………. 9. Power of fix ceiling price of Scheduled Formulations: - (1) Notwithstanding anything contained in this Order, the Government may, from time to time, by notification in the Official Gazette, fix the ceiling price of a scheduled Formulation in accordance with the formula laid down in Paragraph 7, keeping in view the cost of efficiency, or both, of major manufacturers of such Formulations and such price shall operate as the ceiling sale price for all such packs including those sold under generic name and for every manufacturer of such Formulations (2) The government may, either on its own motion or on an application made to it in this behalf by a manufacturer in Form III or Form IV, as the case may be, after calling for such information as it may consider necessary, by notification in the Official Gazette, fix revised ceiling price for Scheduled Formulation.

16 (3) With a view to enabling the manufacturers of similar Formulation to sell those Formulations in pack size different to the pack size for which ceiling price has been notified under subParagraph (1) and (2), manufacturers shall work out the price for their respective Formulation packs in accordance with such norms, as may be notified by the Government, from time to time, and he shall intimate the price of Formulation pack, so worked out, to the Government and such Formulation packs shall be released for sale only after the expiry of 60 days after such intimation: Provided that the Government may, if it considers necessary, by order revise the price so intimated by the manufacturer and upon such revision, the manufacturer shall not sell such Formulation at a price exceeding the price so revised. Explanation. For the purpose of this Paragraph the “Scheduled Formulation” includes single ingredient Formulation based on bulk drugs specified in the First Schedule and sold under the generic name. 11. Fixation of price under certain circumstances:- Where any manufacturer, importer of bulk drug of Formulation fails to submit the application for price fixation or revision, as the case maybe, to furnish information as required under this Order, within the time specified therein, the Government may, on the basis of such information as may be available with it, by order fix the price in respect of such bulk drug or Formulation as the case may be.

17 RE: POINT NO.(1): 14. The object of the promulgation of DPCO - 1995 by the Central Government is to ensure that essential commodities namely, drugs that may be specified under the schedule thereunder are made available to the consumers at a reasonable price. The fixation of price of a commodity is an administrative action to be exercised within the framework of the law promulgated thereunder. In the instant case, the DPCO - 1995 is brought into force with effect from 06-01-1995 to ensure that certain drugs as specified in the schedule thereunder would be available to the common man at an affordable price and in this direction, the expert body namely, NPPA undertakes to fix the price of a scheduled drug by restricting the profit margin by maintaining the quality of the product. Said exercise undertaken by the expert body cannot be construed as being outside its domain. Leaving the price fixation such as drugs in the instant case to the manufacturers themselves would have to be regarded as encouraging private enterprises which may cause the said products beyond the reach of a common man. Thus, in the interest of the public at large, if the State intervenes and

18 controls the price structure of such essential commodities like the drugs specified in the schedule to DPCO – 1995 , it would ensure that larger public interest would be protected by the State. 15. However, such exercise of fixation of price should stand the test of scrutiny of reasonableness. The policy of the Government should be to subserve the common good together with achieving the industrial growth. Thus, bringing about equilibrium in social and economic justice would be the prime concern. Few judgments of the Supreme Court on the scope of judicial review in the matter of price fixation, the avowed object of such fixation by the Government, the yardstick under which the Government undertakes such exercise of the power can be looked into as reflected in the following Judgments: 1) UNION OF INDIA & OTHERS vs HINDUSTAN DEVELOPMENT CORPORATION & OTHERS - AIR 1994 SC 988, it is held as under: “11. Therefore, the avowed policy of the Government particularly from the point of view of public interest is to prohibit concentration of economic power and to control monopolies so that the ownership and control of the material resources of the Community are so distributed as best to subserve the common good and to ensure that while promoting industrial growth there is reduction in concentration of wealth and

19 that the economic power is brought about to secure social and economic justice.” 2) In M/S.SHRI SITARAM SUGAR CO.LTD & ANOTHER vs UNION OF INDIA & OTHERS – AIR 1990 SC 1277, the Supreme Court has held as under: “30. The words "having regard to" in the sub-section are the legislative instruction for the general guidance of the Government in determining the price of sugar. They are not strictly mandatory, but in essence directory. The reasonableness of the order made by the Government in exercise of its power under sub-section (3-C) will, of course, be tested by asking the question whether or not the matters mentioned in clauses (a) to (d) have been generally considered by the Government in making its estimate of the price, but the Court will not strictly scrutinise the extent to which those matters or any other matters have been taken into account. There is sufficient compliance with the sub-section, if the Government has addressed its mind to the factors mentioned in clauses (a) to (d), amongst other factors which the Government may reasonably consider to be relevant and has come to a conclusion, which any reasonable person, placed in the position of the Government, would have come to. On such determination of the price of sugar, which, as stated in Panipat (AIR 1973 SC 537)(supra) is the fair price, the sub-section postulates the calculation of an amount, with reference to such price, for payment to each producer who has complied with an order made with reference to sub-section (2)(f). The "price of sugar", unlike the "amount" is arrived at by a process of costing in respect of a representative cross section of manufacturing units, bearing, of course, in mind the legislative instruction contained in clauses (a) to (d).”

20 “51. 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. See Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation, [1948] 1 K.B. 223. In the words of Lord Machaghten in Westminster Corporation v. London and North Western ' Railway, [1905] AC 426, 430: " ..... It is well settled that a public body invested with statutory powers such as those conferred upon the Corporation must take care not to exceed or abuse its powers. It must keep within the limits of the authority committed to it. It must act in good faith. And it must act rea- sonably. The last proposition is involved in the second, if not in the first.....". In The Barium Chemicals Ltd. v. The Company Law Board [1966] Supp. SCR 311 (AIR 1967 SC 295), this Court states (at Page No.323 of AIR): " ..... Even if (the statutory order) is passed in good faith and with the best of intention to further the purpose of the legislation which confers the powers, since the Authority has to act in accordance with and within the limits of that legislation, its order can also be challenged if it is beyond those limits or is passed on grounds extraneous to the legislation or if there are no grounds at all for passing it or if the grounds are such that no one can reasonably arrive at the opinion or satisfaction requisite under the legislation. In any one of these situations

21 it can well be said that the authority did not honestly form its opinion or that in forming it, it did not apply its mind to the relevant facts".. In Renusagar, [1988] 4 SCC 59, 104 (AIR 1988 SC 1737, 1763), Mukharji, J., as he then was, states: "The exercise of power whether legislative or administrative will be set aside if there is manifest error in the exercise of such power or the exercise of the power is manifestly arbitrary. Similarly, if the power has been exercised on a non-consideration or non-application of mind to relevant factors the exercise of power will be regarded as manifestly erroneous. If a power (whether legislative or administrative) is exercised on the oasis of facts which do not exist and which are patently erroneous, such exercise of power will stand vitiated". “56. The Court has neither the means nor the knowledge to reevaluate the factual basis of the impugned orders. The Court, in exercise of judicial review, is not concerned with the correctness of the findings of fact on the basis of which the orders are made so long as those findings are reasonably supported by evidence. In the words of Justice Frankfurter of the U.S. Supreme Court in Railroad Commission of Texas v. Rowan & Nichols Oil Company (1940)311 US 570-577: 85 Lawed. 358,362: "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

22 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 be 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. 57. Judicial review is not concerned with matters of economic policy. The Court does not substitute its judgment for that of the legislature or its agents as to matters within the province of either. The Court does not supplant the "feel of the expert" by its own views. When the legislature acts within the sphere of its authority and delegates power to an agent, it may empower the agent to make findings of fact which are conclusive provided such findings satisfy the test of reasonableness. In all such cases, judicial inquiry is confined to the question whether the findings of fact are reasonably based on evidence and whether such findings are consistent with the laws of the land. As rated by Jagannatha Shetty, J. in M/s. Gupta Sugar Works, (AIR 1987 SC 2351 at p.2352)(supra): "the court does not act like a chartered accountant nor acts like an income tax officer. The court is not concerned with any individual case or any particular problem. The court only examines whether the price determined was with due regard to considerations provided by the statute. And whether extraneous matters have been excluded from determination."

23 (Emphasis supplied by us) 4) SHREE MEENAKSHI MILLS LTD vs UNION OF INDIA - (1974)1 SCC 468), Supreme Court held as under: “65. If fair price is to be fixed leaving a reasonable margin of profit, there is never any question of infringement of fundamental right to carry on business by imposing reasonable restrictions. The question of fair price to the consumer with reference to the dominant object and purpose of the legislation claiming equitable distribution and availability at fair price is completely lost sight of if profit and the producer's return are kept in the forefront. The maintenance or increase of supplies of the commodity or the equitable distribution and availability at fair prices are the fundamental purposes of the Act. If the prices of yarn or cloth are fixed in such a way to enable the manufacturer or producer to recover his cost of production and secure a reasonable margin of profit, no aspect of infringement of fundamental right can be said to arise.” 66. In determining the reasonableness of a restriction imposed by law in the field of industry, trade or commerce, it has to be remembered that the mere fact that some of those who are engaged in these are alleging loss after the imposition of law will not render the law unreasonable. By its very nature, industry or trade or commerce goes through periods of prosperity and adversity on account of economic and sometimes social and political factors. In a largely free economy when controls have to be introduced to ensure availability of consumer goods like foodstuff, cloth and the like at a fair price it is an impracticable proposition to require the Government to go through the exercise like that of a Commission to fix the prices. The Tariff Board and the Tariff Commission did not deal with the question of fixing prices with a view only to holding price line and in the circumstances that justify giving pre-eminent preference to the interest of the consumer or general public over

24 that of the producers of the commodity and the dealers. Even these Commissions cannot always make a correct estimate of a price which is fair to all because there are intricacies of the trade of all profit making enterprises which a Commission may not be able to probe. As an illustration, the Tariff Commission Report points out that many textile mills use cotton mixes with a view to reducing cost and the result of such mixes is difficult to discern.” (Emphasis supplied by us) 16. A perusal of these judgments would clearly laid down the contours with regard to the judicial review in the matters of price fixation is permissible, which is essentially a legislative act and yet again it should satisfy the test of reasonableness, by keeping in mind the purpose to be achieved while exercising such power. In order to examine as to whether such power is exercised in accordance within the parameters or guidelines laid down thereunder, the Courts would undertake judicial review of such administrative Act. Thus, the Courts would examine the reasonableness in the action by going into the decision making process and not the decision itself. All that the Courts would do is to examine as to whether the repository of the power is exercised in a reasonable manner and thereby avoiding arbitrariness to surface. Nevertheless

25 such fixation being a policy matter which would be in the domain of the executive, minor infraction in exercise of such power would ipso facto does not give rise for a cause of action to challenge the said action so as to invite judicial scrutiny. However, it does not mean that the Government can fix the price by exercising arbitrary power, taking into consideration irrelevant material or not considering relevant factors essential for such fixation and thereby fixing the price which may be found to be contrary to the norms and guidelines fixed in this regard. Thus, burden is cast heavily on the person who approaches the Court to satisfy the Court with relevant material demonstrating that such price fixation is based on either irrelevant factors or has been fixed ignoring the relevant factors which ought to have been taken into consideration. This would form the foundation for invoking jurisdiction of this Court. Thus, when such grievance is brought before the Court, it is always open for judicial review or scrutiny to ascertain and examine as to whether the mode adopted by such authority is in consonance with prescribed norms and it is reasonable or otherwise and whether it has acted in ultra vires of its powers.

26 17. It is no doubt true that fixation of price for medicine/drugs involves the need of expertise. The scope of judicial review with respect to price fixation by the Government is delineated by plethora of judgments of the Hon’ble Supreme Court and a few of which are already noticed by us hereinabove whereunder their Lordships have lucidly laid down the parameters or contours under which judicial scrutiny is permissible. In the instant case, the hue and cry raised by the petitioners is with regard to fixation of ceiling price of the drug ‘Glipizide’ on the ground that norms laid down under DPCO-1995 has not been followed and thereby it has resulted in fixation of ceiling price irrationally and contrary to norms. Hence, it cannot be gainsaid by the respondents that judicial review of such executive action is impermissible in the light of such a plea raised by petitioners and as such we are of the considered view that it is in the domain of the Courts to have a judicial review of an administrative action undertaken for fixation of price and particularly with reference to the DPCO – 1995 and guidelines issued thereunder and as such, point No.(1) is answered in the affirmative.

27 RE: POINT NO(2): 18. We would now proceed to consider as to whether the price fixation undertaken by the respondents under the impugned notification is just and proper and whether there is rational nexus to the ceiling price fixed vis-à-vis norms enumerated in the DPCO – 1995 and in this limited sphere this point is examined by us. 19. Paragraph 3 of the DPCO-1995 empowers the Government to fix the maximum sale price of the bulk drugs as specified in the First Schedule. Clause (a) of Paragraph 4 of the DPCO-1995 mandates that every manufacturer is required to furnish the information in relation to the Scheduled bulk drugs manufactured by them and to furnish information of all such drugs within 30 days of DPCO – 1995. Under clause (b) of para 4 of the DPCO - 1995, the manufacturer of a scheduled bulk drug should furnish after commencement of DPCO-1995 the details of the cost of each scheduled bulk drug in Form No.1 by 30th September of every year. Likewise, the manufacturer of non scheduled bulk drug should furnish the information regarding details of cost in Form No.2. However, no time limit is fixed insofar as the non scheduled

28 drug is concerned. Paragraph 6 empowers the Government to issue directions to manufacturers of bulk drugs to sell bulk drugs to such other manufacturers of Formulations which may be specified in such order to achieve adequate production and equitable distribution. Paragraph 7 provides for calculation of retail price of Formulation which would be in accordance with the formula prescribed thereunder. Further, Paragraph 8 provides for fixation of retail price of Scheduled Formulation from time to time in accordance with the formula laid down under Paragraph 7. Paragraph 9 provides for fixing ceiling price of Scheduled Formulations by the Government from time to time in accordance with the formula laid down in Paragraph 7 by keeping in view the cost or efficiency, or both, of major manufacturers of such Formulations, notwithstanding anything contained in the said order. 20. The thrust of the arguments which co-relates to the grievance of the petitioner in the instant petition is that it manufactures and sells both single and multiple ingredient Formulations containing the bulk drug “Glipizide” by selling its products both as manufacturer and also for other pharmaceutical companies on loan-

29 licence basis and contends that while fixing the ceiling price under DPCO - 1995, the cost or efficiency or both, of major manufacturers of such Formulations must be taken into consideration and further contends that under the DPCO-1995, Government is required to fix the norms for calculating the process loss, calculating the conversion cost, the packing material cost and packing charges. In other words, it is the contention of the petitioner that such norms have not been notified and as such, fixation of the ceiling price without the norms being notified for calculating the packing material cost would be contrary to Paragraph 7 of DPCO-1995. 21. There cannot be any doubt with regard to the mode and manner under which ceiling price of a Formulation has to be calculated by the Government. The calculation of retail price of Formulation would necessarily have to be under the formula prescribed in Paragraph 7 of DPCO-1995 and formula thereunder is required to be followed to arrive at the retail price of a Formulation. Said formula as found in Paragraph 7 of DPCO-1995 reads as under: “R.P.=(M.C+C.C+P.M.+P.C.)x1+MAPE/100)+ED

30 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 the 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

31 including interest and importer’s profit which shall not exceed fifty percent 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. 22. A reading of the above clause in conjunction with Paragraph 9, would clearly go to show that Government from “time to time” is required to fix ceiling price of a scheduled Formulation in accordance with the above formula. To arrive at such retail price various factors are required to be considered like material cost, conversion cost, cost of packing material and packing charges. The Government is required to fix as a norm every year by issuance of a notification in the official gazette by specifying the norms. In the instant case it is noticed that initially these norms came to be fixed in the year 1999 i.e., 13.07.99 vide Annexure-D except norms for calculating packing material which is also mandatory.

The Government instead of fixing the said norms by inviting outputs being furnished by the interested parties or obtaining such inputs through its own resources has proceeded to mechanically issue notifications year after year by extending the norms fixed under Notification dated

32 13.07.99 to hold good for the coming years i.e., 2000-2003. One another fact which is conspicuously found is that norms for calculating material cost admittedly has not been notified. Further the norms for calculating conversion cost, packing charges and process loss that were fixed in the year 1999 have been continued till 2003. The fixation of ceiling price can be done on the basis of the information furnished by the manufacturer or by calling for such information from the manufacturers. In other words, it would mean that the Government should acquire information in this behalf and then fix the ceiling price. It is no doubt true under sub Paragraph (3) of Paragraph 9, such revisions can be effected by the Government on its own motion or on an application made to it by the manufacturer.

However, non-furnishing of such information by the manufacturers does not absolve the Government of its onerous responsibility in arriving at these costs by fixing the norms on year to year basis by taking a holistic view. The proforma in which the information is to be furnished by the manufacturer is prescribed under Paragraphs 4 and 5 of the DPCO-1995 as already stated hereinabove. Form No.1 which is appended to the DPCO - 1995 would clearly go to show that under

33 item No.18 the manufacturer is required to furnish the cost of production of the bulk drug as per Annexure to the Form and said Annexure would clearly depict that various details/inputs are required to be furnished by the manufacturer along with details thereunder as specified under sub-headings notified which comprises item Nos.1 to 17. Under item No.8, it has been specified as under: 8.- Packing:- a) materials b) other expenses Total packing cost Likewise, in Form No.2 under Sl.No.13, the manufacturer is required to furnish the details of cost of production of the bulk drug like major raw materials, total raw material cost, cost of production, cost of sales etc., utilised for manufacturing a Scheduled or Non-Scheduled drug to enable the Government to undertake price fixation by taking these factors. 23. The Government may from time to time can fix the ceiling price of a Scheduled Formulation in accordance with the Formula laid down under Paragraph 7 by publishing a notification in the Official Gazette as

34 prescribed under Paragraph-9 notwithstanding anything contained in DPCO-1995. Such power can be exercised by the Government either on its own motion or on an application made to it by the manufacturer in Form No.III (relating to Scheduled Formulations – Manufactured in India) or in Form No.IV (relating to Scheduled Formulations imported in finished form). While submitting Form No.3 the break up detail of retail price is required to be furnished for approval or revision of price of scheduled Formulations. Apart from furnishing other details, the break up of the retail price under the following headings is required to be furnished: Details Existing Price if any (Rs./Pack) Now climbed (Rs./Pack) a Material Cost (as per S.No. 14 (d); b Conversion Cost (as per norms); c Packing Material Costs (as per S. No. 15 or as per norms); d Packing Charges; e Ex-factory Cost (a) to (d); f MAPE 100% on (c) above; g Excise Duty; h Retail Price (R.P) (c)+(f)+(g)

35 Likewise the applicant is required to furnish the material cost and packing material cost as per Sl.No.14 and 15 as specified in Form No.III which is extracted herein below. 14. Material Cost: (a) Batch Size (No./Litres/Kgs/etc); (b) No. of packs that can be theoretically obtained from the batch size as in (a) above; (c) Material Cost for the batch size as in (a) above; Sl. no. Name of the Material Unit Theoretical Quantity Actual Overages Total Quan tity (4+5) Rate/ Unit Cost for the Batch (6*7) 1 2 3 4 5 6 7 8 Imported 1 2 3 Etc… 1. Existing Retail Price Approval Letter No. and Date- copy to be enclosed FORM III). DRUGS (PRICES CONTROL) ORDER, 1995 Indigenous 1. 2. 3. etc ----------------------------------------------------------------- Total……………………………………..: Add: Process loss as per norms………..%: Total Material Cost………………………….: Material Cost per Pack = Total Material Cost Theoretical No. of Packs

36 15. Packing Material Costs:- Packs of …………………………………. Batch Size………………………………Tablets/Gms/etc. each Sl. No. Name of the Packing Material Unit Rate per Unit (Rs.) Qty. Required per Batch Value of Packing Materials/Batch (Nos./Kgs. Etc) (Rs.) 1 2 3 4 5 6 Imported 1 2 3 etc. Indigenous 1 2 3 Etc. Total………………………………….: Add: Process loss as per norms……..%: Total Packing Material Cost………..: Packing Material Cost per Pack = Total Packing Material Cost No. of Packs as per Batch Size 24. Thus, it would clearly go to show that these are the factors which are considered relevant for the purposes of price fixation by the Government itself and even according to the Government it has thought fit, necessary and appropriate to determine the price fixation based on these criteria envisaged in Form III. It is in this background, Paragraph 9 of DPCO – 1995 is required to be understood, more particularly the power of the Government

37 to be exercised while fixing the price of scheduled Formulations ie., “time to time”. Attempting to assign any other interpretative process may lead to ignoring the statutory guidelines or it would negate the very purpose with such norms are envisaged to be fixed from time to time. 25. The material on record do not disclose that in the instant case, Government has undertaken such an exercise to fix the ceiling price for scheduled drug Formulations. In this factual matrix, if we peruse the notifications issued by the respondents in the instant case, which are at Annexures-C, D, E, F, G & H it would clearly go to show that such an exercise has not been undertaken. This we say so, because the revision has been made mechanically and no material is forthcoming either from the statement of objections or from any other material available on record that such inputs envisaged under Paragraph 9 has gone into price fixation to arrive at the ceiling price and thereby decision making process has been given a complete go-by. It is no doubt true that Government has called upon the manufacturers to furnish the details so as to enable it to undertake the exercise of revising the price of Scheduled

38 Drug Formulations. It is also on record by way of statement of objections filed by the respondents that in spite of such information being called for, same has not been furnished by the manufacturers. The question would be whether mere calling for such information would absolve the Government of its statutory duty or obligation cast under the DPCO-1995. Even in the absence of the information furnished, it would be necessary and incumbent upon the Government to apply the formula as prescribed under Paragraph 7 to fix the ceiling price by taking into consideration all such relevant factors/norms prescribed therein. In the absence of such an exercise being undertaken, issuance of notifications mechanically would result in price fixation in mechanical and haste manner as has been found by us in the instant case. 26. The intent of the legislature for using the word “time to time” under Paragraph No.9 of DPCO-1995 is for the purposes of taking into consideration various factors prescribed under Paragraph 7 since these factors have the tendency of fluctuating. In other words, factors like cost of the packing material, labour, cost of the power used in the said industry, cost of raw materials, salaries and wages

39 would always tend to ascend rather than descend and as such, in the absence of any input in this regard having gone into whilst fixing the ceiling price of the Formulation, the action of State smacks of it being arbitrary and without due application of mind. 27. Yet another factor which requires to be considered or examined by us is the issue regarding non fixation of the norms for calculating the packing material cost by the Government. Admittedly no such norms have been fixed in regard to packing material cost. Even assuming in a given situation that manufacturers tend to ignore to furnish the information sought for by the Government, the course left open to the Government is to adopt such norms to the factors prescribed under Paragraph 7 and apply the formula to arrive at the ceiling price. In the absence of any norms having been fixed, it gives way for the arbitrariness to step in resulting in improper or irrational fixation of ceiling price. It is always open to the Government to secure the relevant information or material from its own sources and agencies in the event of non co-operation exhibited by the manufacturers and by using its agencies under its command. We notice in the instant case that packing

40 materials norms have not been notified by the Government. However, in spite of notifying norms in relation to other factors the manufacturers have not furnished the same. In the event norms are fixed from time to time by publishing the same and after giving wide publicity, if the manufacturers do not come forward to place any contra material then, Government would definitely be within its domain to proceed to fix the ceiling price based on such norms by applying the formula prescribed under Paragraph 7. However, we find no such exercise has been undertaken by the Government in respect of impugned notifications. It would be needless to state that such norms if any is also required to be reviewed/modified/varied from time to time as the exigencies may demand. Thus, a notification issued in a particular year cannot hold good for eternity nor revision of such price made under a notification cannot be revised unilaterally or without obtaining information/inputs necessary for fixation of such price. 28. We have also perused the judgment of the Hon’ble High Court of Judicature at Allahabad in the case of M/S.CIPLA LIMITED and the judgment of the Punjab and Haryana High Court in the case of MARTIN AND HARRIS

41 LABORATORIES LTD , we are in full agreement with the aforesaid judgments and we do not find any good ground to deviate from the findings arrived there at. Accordingly, point No.(2) is answered in the negative i.e., in favour of the petitioner and against the respondents. 29. In view of the above, we pass the following: ORDER Writ Petition is hereby allowed. The notification dated 3-9-2003 – Annexure-A and notification dated 11-07-2003 Annexure-H are hereby quashed. Respondents are at liberty to issue fresh notification by keeping in mind the observations made herein above and in accordance with DPCO-1995. Costs made easy. Sd/-

CHIEF JUSTICE Sd/-

JUDGE sp