Ministry of Chemicals & Fertilizers Government of India Vs. M/S. Cipla Ltd. & Ors
 Insc 347 (1
Babu, P.Venkatarama Reddi & Arun Kumar. P. Venkatarama Reddi, J.
These appeals by special leave preferred by the Union of India are directed
against the common judgment of the Bombay High Court in a batch of writ
petitions filed under Article 226 of the Constitution by the
manufacturers/importers of certain bulk drugs and their formulations. The bulk
drugs concerned are seven in number. They are: Salbutamol, Theophylline, Cyproflaxacin,
Norfloxacin, Cloxacillin, Doxycycline and Glipizide. These bulk drugs and the
formulations made out of them are sold within the country and part of the
quantities produced are also exported outside the country. The challenge is to
the inclusion of the said bulk drugs in the first schedule to the Drugs (Price
Control) Order, 1995 (hereinafter referred to as 'the DPCO'). Though the
fixation of price pursuant to the provisions of the said Order was also
challenged in some of the writ petitions, that issue was not gone into by the
High Court and at any rate, the mechanics of price fixation is not the
contentious issue before us. However, it may be noted that the remedy by way of
review is available under paragraph 22 of the DPCO to seek reconsideration of
price fixation. The immediate provocation for filing the writ petitions in the
High Court seems to be the notices issued by the National Pharmaceutical
Pricing Authority, calling upon some of the Respondent-Companies to deposit the
overcharged amounts in relation to the formulations of scheduled drugs.
The High Court held that the concerned drugs should not have been brought
within the purview of the DPCO, 1995 and consequently, there could be no
fixation of price in relation to those drugs. The notices demanding overcharged
amounts were quashed. The writ petitions were thus allowed by the Division
Bench of High Court.
The DPCO, 1995 which came into force on 6th January, 1995, was promulgated by the Central
Government in exercise of the powers conferred by Section 3 of the Essential
Commodities Act. It repealed the earlier DPCO of 1987, under which more number
of drugs were subjected to price control. 'Drug' as defined in Drugs & Cosmetics
Act is one of the essential commodities.
According to Section 2(a) of DPCO, 'Bulk Drug' means any pharmaceutical,
chemical, biological or plant product including its salts, esters,
stereo-isomers and derivatives, conforming to pharmacopoeia or other standards
specified in the Second Schedule to the Drugs and Cosmetics Act, 1940 and which
is used as such or as an ingredient in any formulation. 'Formulation' is
defined to mean a medicine processed out of, or containing one or more bulk
drug or drugs with or without the use of any pharmaceutical aids, for internal
or external use in the diagnosis, treatment, mitigation or prevention of
disease in human beings or animals.
Paragraph 3 of DPCO empowers the Central Government to fix, from time to time,
a maximum sale price at which the bulk drug specified in the first schedule
shall be sold, after making such inquiry, as it deems fit. The opening clause
of sub-para (1) spells out the avowed purpose of price control on the scheduled
bulk drugs. The declared objective is to regulate the equitable distribution
and increasing supplies of the specified bulk drug and making them available at
a fair price. There is a prohibition against the sale of bulk drug at a price
exceeding the maximum sale price fixed under sub-paragraph (1) plus local
taxes, if any. As already observed, we are not concerned here with the
modalities of fixation of price. The very inclusion of these bulk drugs in the
schedule is being assailed on the ground that it is opposed to the norms laid
down by the Central Government itself in the Drug Policy of 1994 and,
therefore, the delegated legislative power exercised by the Government is
arbitrary and violative of Article 14 of the Constitution. The plea of the
respondents was accepted by the High Court.
the Drug Policy document issued on 15th September, 1994, the Central Government noticed
that during the last decade, the drug industry had grown significantly in terms
of production of bulk drugs and formulations and the export performance of the
industry had been commendable. It was said that the pharmaceutical sector had
been able to carve a special niche for itself in the international market as a
dependable exporter of bulk drugs. The drug policy with regard to pricing has
been stated thus in paragraph 9 of the policy Paper:
Pricing—The aberrations which have come to notice, in the listing of drugs and
their categorization for the purpose of price control, need to be eliminated by
the use of transparent criteria applied across the board on all the drugs with
the minimum use of subjectivity. The high turnover of a drug is an index of its
extent of usage and is considered to meet the requirements of objectivity
justifiable on economic considerations. However, the monopoly situation in
cases of drugs with comparatively lower turnover has also to be kept in view.
Also, as an experimental measure, drugs having adequate competition may not be
kept under price control and if this proves successful it would pave the way
for further liberalization. In the event, however, of prices of these drugs not
remaining within reasonable limits, the Government would reclamp price
control." In paragraph 11, it is stated— "In the light of the
apprehensions expressed in the Parliament on the likely spurt in the prices of
medicines, it has been felt that it would not be desirable to allow automaticity
in the pricing mechanism. The Government would set up an independent body of
experts, to be called the National Pharmaceutical Pricing Authority, to do the work
of price fixation. This expert body would also be entrusted with the task of
updating the list of drugs under price control each year on the basis of the
The Government's resolve to closely monitor the trends of prices of medicines
and to take appropriate measures to reclamp price control in case the prices of
such medicines rise unreasonably, has been stressed in paragraph 12. Then, we
come to the most important paragraph in the Drug Policy i.e., 22.7.2 which bears
the heading 'Span of Control'. It sets out the criteria for bringing the drugs
under price control. We quote paragraph 22.7.2:- 22.7.2. Span of Control—
The criterion of including drugs under price control would be the minimum
annual turnover of Rs.400 lakhs.
Drugs of popular use in which there is a monopoly situation be kept under price
control. For this purpose for any bulk drug, having an annual turnover of
Rs.100 lakhs or more there is a single formulator having 90% or more market
share in the Retail Trade (as per ORG) a monopoly situation would be considered
Drugs in which there is sufficient market competition viz., at least 5 bulk
drug producers and at least 10 formulators and none having more than the 40%
market share in the Retail Trade (as per ORG) may be kept outside the price
a strict watch would be kept on the movement of prices as it is expected that
their prices would be kept in check by the forces of market competition. The
Government may determine the ceiling levels beyond which increase in prices
would not be permissible.
Government will keep a close watch on the prices of medicines which are taken
out of price control.
case, the prices of these medicines rise unreasonably, the Government would
take appropriate measures, including reclamping of price control.
For applying the above criteria, to start with, the basis would be the data upto
31st March, 1990 collected for the exercise of the
Review of the Drug Policy. The updating of the data will be done by the
National Pharmaceutical Pricing Authority as detailed in para 22.7.4(i).
central theme of the arguments is that the norms set out in sub-Paras (i), (ii)
& (iii) have not been adhered to by the Government while framing the first
schedule to DPCO in purported implementation of the drug policy. There was
either deviation from the criteria set out or there was no scientific or
rational assessment of the factors relevant to the norms. Most of the arguments
centered round the interpretation of the three clauses in para 22.7.2—an
exercise which is usually associated with the construction of statutes. The sum
and substance of the arguments on behalf of the respondents is that the seven
bulk drugs get excluded from the span of control under one or more norms spelt
out in para 22.7.2, whereas the stand of the appellants is that the concerned
bulk drugs were included in the schedule only after being satisfied that they
came within the ambit of price control criteria. It is also the contention of
the appellant that the Government's decision to bring these important bulk
drugs within price control is in accordance with the objectives underlying in
Section 3 of the Essential Commodities Act, particularly, the interests of
consumers. Every attempt was made to examine the facts and figures by an Expert
Group of the standing committee, keeping in view the prescribed norms in Drug
Policy. It is pointed out that the High Court cannot go into the intricacies of
price fixation under Article 226 of the Constitution or sit in judgment over
the exercise done by experts.
is axiomatic that the contents of a policy document cannot be read and
interpreted as statutory provisions. Too much of legalism cannot be imported in
understanding the scope and meaning of the clauses contained in policy
formulations. At the same time, the Central Government which combines the dual
role of policy-maker and the delegate of legislative power, cannot at its sweet
will and pleasure give a go-bye to the policy guidelines evolved by itself in
the matter of selection of drugs for price control.
Government itself stressed the need to evolve and adopt transparent criteria to
be applied across the board so as to minimize the scope for subjective approach
and therefore came forward with specific criteria. It is nobody's case that for
any good reasons, the policy or norms have been changed or became impracticable
of compliance. That being the case, the Government exercising its delegated
legislative power should make a real and earnest attempt to apply the criteria laid
down by itself. The delegated legislation that follows the policy formulation
should be broadly and substantially in conformity with that policy; otherwise
it would be vulnerable to attack on the ground of arbitrariness resulting in
violation of Article 14.
Page 641], the grounds on which subordinate legislation can be questioned were
outlined by this Court. E.S. Venkataramiah, J.
piece of subordinate legislation does not carry the same degree of immunity
which is enjoyed by a statute passed by a competent Legislature. Subordinate
legislation may be questioned on any of the grounds on which plenary
legislation is questioned. In addition it may also be questioned on the ground
that it does not conform to the statute under which it is made.
*** *** It may also be questioned on the ground that it is unreasonable,
unreasonable not in the sense of not being reasonable, but in the sense that it
is manifestly arbitrary. In England, the
Judges would say "Parliament never intended authority to make such rules.
They are unreasonable and ultra vires."
True, the breach of policy decision by itself is not a ground to invalidate
delegated legislation. But, in a case like this, the inevitable fallout of the
breach of policy decision which the Government itself treated as a charter for
the resultant legislation is to leave an imprint of arbitrariness on the
legislation. When the selection or classification of certain drugs is involved
for the purpose of price control, such selection or classification should be on
rational basis and cannot be strikingly arbitrary. No doubt, in such matters,
wide latitude is conceded to the legislature or its delegate. Broadly, the
subordinate law-making authority is guided by the policy and objectives of
primary legislation disclosed by preamble and other provisions. The delegated
legislation need not be modelled on a set pattern or pre-fixed guidelines.
However, where the delegate goes a step further, draws up and announces a
rational policy in keeping with the purposes of enabling legislation and even
lays down specific criteria to promote the policy, the criteria so evolved
become the guide-posts for its legislative action. In that sense, its freedom of
classification will be regulated by the self-evolved criteria and there should
be demonstrable justification for deviating therefrom. Though exactitude and
meticulous conformance is not what is required, it is not open to the
Government to go hay-wire and flout or debilitate the set norms either by
giving distorted meaning to them or by disregarding the very facts and factors
which it professed to take into account in the interest of transparency and
objectivity. Otherwise, the legislative act of the delegate in choosing some
drugs for price control while leaving others will attract the wrath of Article
14. That is why the Union of India has taken the stand throughout that it stood
by the policy while framing the legislation and that there was every endeavour
to apply the criteria spelt out in the Drug Policy of 1994 before including the
drugs in question in the first schedule. The correctness of this contention
should, of course, be examined.
With this prologue, let us proceed to analyze the three relevant criteria in
the drug policy. According to the first criterion, for bringing the drugs under
the price control, the minimum annual turnover of the drug should be 400 lacs.
However, this requirement is qualified by and subject to the criteria laid down
in (ii) & (iii).
a monopoly situation prevails in respect of any bulk drug, the minimum annual
turnover requirement gets reduced to 100 lacs.
monopoly situation is deemed to exist where there is a single formulator
commanding 90% or more market share in the retail trade (as per ORG data).
According to the 3rd criterion, even if minimum annual turnover exceeds 400 lacs,
the drug will be kept outside price control in case there is sufficient market
yardstick for assessing whether there is sufficient market competition,
according to clause (iii) is that there are at least five producers of the
particular bulk drug and at least ten formulators and none of them have more
than 40% market share in the retail trade (as per ORG data).
said criteria have to be worked out with reference to the data available upto 31st March, 1990 which means, the relevant facts and
figures relating to the financial year 1989-90 have to be taken into account.
This is not in dispute.
already noted, there is no quarrel about the criteria that has been laid down.
It is not the case of the Union of India that any different criteria had been
applied while promulgating the DPCO of 1995. The controversy revolves round its
actual application or methodology of working out the criteria. What is the
annual turnover made up of? In other words, how to work out the turnover
figures? Is there sufficient market competition as contemplated by clause
(iii)? It is with reference to these two aspects that the Government's stand
has not been accepted and the writ petitioner's contention found its acceptance
by the High Court.
First, we shall take up the issue of 'annual turnover'. The stand of the
appellant, as discernible from the affidavits on record sworn to by the
officials of the Department of Chemicals and Petrochemicals, Government of
India is that the turnover of bulk drug ought not to be mixed up with retail
sale data of the formulations of that bulk drug; in other words, the retail
sale data pertains to formulations of a bulk drug and not to the bulk drug
broad manner in which the turnover has been assessed is indicated in paragraph
8 of the rejoinder affidavit filed in SLPs. It is stated that the expert group
of the Standing Committee which went into the whole issue of
exclusion/inclusion of drugs under price control "took the data for
turnover of the bulk drugs comprising of the value of its total production in
the country and value of weighted average of landed cost of total imports into
the country, as the basis for viewing the price scenario from different points
of view". It is then stated in paragraph 10 - "In the further
respectful submission of the petitioner the intent behind using the said word
(turnover) has been to determine the extent of usage of a bulk drug in the
country (emphasis supplied). This was the measure adopted by the expert group
in case of each bulk drug by taking into account the aggregate of its total
imports into the country and its total indigenous production in the country.
This has been the connotation of the word 'turnover' at various levels
throughout the deliberations and in implementation of the policy through DPCO
1995 and was never confined to the narrow connotation of the word 'sales
turnover' ". In short, it is submitted (vide paragraph 13) that the value
of total production plus imports of the bulk drug in the country determines the
annual turnover for the purpose of clauses (i) & (ii) of para 22.7.2. As a
corollary to this stand, the contention advanced on behalf of the Union of
India is that export sales could also be taken into account in arriving at the
annual turnover. According to the respondents (writ petitioners), the annual
turnover could only mean sales of bulk drug within the country either in the
same form or by way of formulations and it has nothing to do with export sales.
entirety of production and imports cannot be regarded as turnover. It is
submitted by the respondents that the bulk drugs are sold mostly in the form of
formulations and the quantities of bulk drugs utilized in such formulations are
given in ORG data. From this, the bulk drug turnover can be easily ascertained.
The sales of the bulk drugs as such to the institutions etc., will be
negligible i.e., about 15%, as per the certificate issued by ORG in one of the
cases. It is, therefore, commented that the contention that the ORG data does
not afford the basis for ascertaining the annual turnover of the bulk drug, is
The High Court, substantially agreeing with the contentions of the
respondents—writ petitioners held that the expression 'turnover' occurring in
Drugs Policy can only mean domestic sales figures and nothing else. Export
sales cannot be included within the ambit of turnover. The High Court observed that
the concepts of 'turnover' and 'market share' are interrelated and
inter-dependent. The expression 'turnover', if interpreted in a contextual and
purposive manner, would not include exports. The extent of usage of the bulk
drug in the country would be determinative of turnover. By taking the export
sale figures and the value of entire production of bulk drugs into account, the
Central Government had acted contrary to its own guidelines contained in Drug
Policy, 1994. The High Court then proceeded to discuss whether each of the
drugs concerned could be brought within the purview of DCPO, 1995 and answered
that question in favour of the writ petitioners.
Before proceeding further, we may notice that the National Pharmaceutical
Pricing Authority (NPPA) constituted by the Government of India considered the
representation of Bulk Drugs Manufacturers Association (BDMA) on the subject of
inclusion/exclusion of drugs under DPCO. The NPPA passed a reasoned order
rejecting the representation on dt. 6.4.1998. In that order, the issues raised
by BDMA regarding exclusion of six out of eight drugs with which we are
concerned, were considered by the said authority. There was however no
consideration as regards two drugs, namely, Doxycycline and Glipizide, probably
because the representation did not cover those two drugs.
Before we take up the issue of export sales, it is necessary to understand the
true import and expanse of the expression 'turnover' occurring in clause (i) of
para 22.7.2 of the Drug Policy, 1994. What is the 'turnover' contemplated by
the said paragraph? Can it be equated to the value of imported bulk drug and
its production, as contended by the appellant OR should it be equated to the
actual sales within the country? Should the export sales be included in
turnover? These are the questions to which this Court has to address itself.
'Turnover' in its ordinary sense connotes amount of business usually expressed
in terms of gross revenue transacted during a specified period (vide Collins
Dictionary). Broadly speaking, it represents the value of the goods or services
sold or supplied during a period of time. The amount of money turned over or
drawn in a business during certain period, is another shade of meaning.
need not refer to the definition of 'turnover' in Sales tax and other fiscal
enactments—reliance on which was placed by some of the learned counsel as they
are not quite relevant for the purpose of understanding the expression
'turnover' occurring in a policy document. Nor should we seek any assistance
from the definition of 'sale turnover' occurring in DPCO in a different context
and for a different purpose. Going by its ordinary meaning and the way in which
it is commonly understood in trade and commerce, it is difficult to equate turnover
to the value of stock acquired either by means of imports or production. For
instance, the entire stock in trade, say, lying in a godown and not circulated
in business, cannot be regarded as turnover, even giving broadest meaning to
the expression 'turnover'. The reasoning which could be spelt out from the
order passed by NPPA (referred to supra) and in the counter affidavits filed by
the appellants that indigenous production plus imports furnishes an indicia of
the total business in the country in relation to a particular bulk drug, cannot
be accepted. It is only what is sold out and marketed that could be
legitimately regarded as turnover of the specified drug. It may be that in the
absence of availability of reliable data regarding sales, the import value and
production value could be the basis to estimate the sale value after giving due
allowance to various factors such as wastage, unsold stocks etc. But, treating
the turnover as nothing but the value of stock produced or imported during a
given period will be doing violence to the ordinarily accepted meaning of the
expression 'turnover'. There can be no presumption that the entire stock of
bulk drug produced or imported during the year had been sold out during that
year either in the form of formulations or otherwise.
we would like to make it clear that the production and import statistics are
not altogether irrelevant. They are relevant in the sense that they furnish
some basis for estimating the sales when there is no other reliable and comprehensive
data of sales available.
The question whether export sales should also be taken into account in
computing the annual turnover needs to be discussed now. There can be no doubt
that the meaning of the expression 'turnover' either in its ordinary or legal
sense includes export sales.
we must have regard to the terms and objectives of the policy and try to
understand that expression accordingly. Para 9 of the Drug Policy, 1994 makes
it clear that the high turnover of a drug is an index of its extent of usage.
'Usage' has obvious reference to consumption and consumption within the
domestic market. Whether the drug is extensively used within the country is one
of the considerations kept in view to clamp price control. The export potential
of the drug or its usage in foreign countries could not have been the reason to
notify the specified drugs for price control. If there is any doubt in this
regard, it is dispelled by what is stated in paragraph 10 of the rejoinder
affidavit which we quoted supra. To repeat, it was stated therein that the
intent behind using the word 'turnover' has been to determine the extent of
usage of a bulk drug in the country. It is also pertinent to note that the
Govt. of India has not come forward with any explanation as to why export sales
also should be taken into account in assessing the turnover as per the criteria
laid down in the Drug Policy. For all these reasons, we are in agreement with
the High Court that the export sales ought to have been excluded while calculating
the turnover. How far the exclusion of export sales would make any difference
is a different matter.
Another grey area which has surfaced in the backdrop of the Drug Policy, 1994
is whether for the purpose of clause (iii), the expression 'formulators' should
be confined to single ingredient formulators or it should extend to
multi-ingredient formulators as well. The NPPA while rejecting the
representation of the Bulk Drug Manufacturers' Association, referred to the
clarification issued by the Government of India in its communication dated
10.6.1997 addressed to one of the writ petitioners which is as follows:
basis of the single ingredient formulation as against that of the combination
formulation (for purpose of calculating market share), is not only justified on
account of predominance of single ingredient formulation, on over all basis,
but also vindicates the objective of "promoting the rational use of drugs
in the country" mentioned in paragraph 1(b) of the "Modifications in
Drug Policy, 1986". The Principle of covering only single ingredient
formulations, for purposes of calculating market share is a transparent,
objective and verifiable principle and hence suitable for policy issues.
of a bulk drug, containing one or more other bulk drug are not comparable in
terms of their sales values. Therefore, it is practically not possible to apply
the criteria relating to market share of a formulator of a bulk drug on the
basis of data of its combination formulations, across the board, in a
transparent, objective and verifiable manner as required for policy
issues." It is, therefore, contended by the Union of India that only
single ingredient formulations have to be taken into account for the purpose of
working out the criterion in clause (iii) and that the number of single
ingredient formulators of the concerned bulk drug is not discernible from ORG
data. Of course, it is the contention of the respondents that no such
distinction can be drawn. It is contended that such distinction is irrational.
view, the clarification given by the Government of India reflects a reasonable
view point and it cannot be said that by adopting such approach, a distorted
meaning is given to the expression 'formulator' much against the spirit of the
policy. At any rate, two views are possible and it is not for the Court to
decide which view is preferable.
Before closing the discussion on the controversies surrounding the criteria
evolved in the Drug Policy, there is one argument of the learned Solicitor
General which we would like to refer to. The learned Solicitor General argued
that the expression 'may' occurring in clause (iii) of para 22.7.2 of the Drug
Policy confers discretion and flexibility in approach to the Government of
India. Even if a particular bulk drug stands outside price control by the
application of such criteria, the discretion is still left to the Government to
include the drug in the Schedule for good reasons.
argument cannot be countenanced for the simple reason that it is not the case
of the Government that for any particular reason or reasons, the bulk drug
concerned was brought within the purview of price control, though the drug
qualifies for exclusion under clause (iii). Even assuming that the discretion
is available in terms of the policy, the factum of exercising such discretion
for relevant reasons should be disclosed. In the absence of such disclosure,
the Court must proceed on the basis that the Government stood by the criteria
and saw no need to deviate therefrom.
Now it is necessary to advert to the nature of the claim made by the writ
petitioners in relation to each of the bulk drugs, the stand taken by the Union
of India and the conclusions of the High Court.
According to the writ petitioner-Company, the annual turnover for the year
ending March, 1990 was Rs.171.17 lacs based on the ORG data. The sales of
formulations in domestic market has been taken as the basis to calculate the
consumption. It is then multiplied by the notified price prevalent during the
relevant period. It is the further case of the writ petitioner that there were
as many as 24 formulators including the petitioner, none of whom had the market
share of more than 40%. Admittedly, there were more than five bulk drug producers.
The writ petitioner-Company, therefore, claimed the benefit of exclusion both
under clause (i) and (iii) of para 22.7.2 of the Drug Policy, 1994. The
Government of India took the stand that the bulk drug turnover was Rs.11.50 crores
based on the value of domestic production and imports. Moreover, there were
only seven known formulators of the bulk drug.
it is contended that the drug Salbutamol does not qualify for exclusion either
under clause (i) or (iii). The High Court accepted the claim of the
petitioner-Company on the ground that in the counter-affidavit filed by the
Union of India, there was only a bald denial and the details given by the writ
petitioners were not controverted.
The writ petitioners claimed exclusion under clause (iii). The names of six
bulk drug producers and 31 formulators were given in the writ petition. In the
counter-affidavit, it was merely stated that there were less than five known
manufacturers of bulk drug and less than 10 known formulators of the bulk drug
and therefore the drug Theophylline did not qualify for exclusion under clause
(iii). The High Court observed that the particulars furnished by the petitioner
were not effectively controverted, there being only a bald denial. It was therefore
held that the drug ought not to have been brought under price control.
the statement furnished by the learned Solicitor General at the time of
hearing, the fact that there were more than five bulk drug producers, was
accepted but the number of formulators was given as seven. Therefore, the
dispute is confined to the number of formulators, the term 'formulator' being
understood in the sense in which the Government of India explained in its clarificatory
letter dated 6-4-1998.
: The writ petitioners concerned are said to be the manufacturers of
formulations made out of Cloxacillin. There is no dispute that the annual
turnover at the relevant time was much more than 400 lacs. The writ petitioners
claimed exclusion of the drug Cloxacillin on the basis of clause (iii) of para
22.7.2. According to them, there were as many as 16 bulk drug producers and 23
formulators in respect of Cloxacillin and none of the formulators had more than
40% market share as per the ORG figures for the year 1989-90 (upto March 1990).
The High Court accepted the case of the petitioners on the ground that the
factual particulars were not controverted, but there was only a bald denial in
the counter affidavit filed by Union of India. The counter-affidavit of Union
of India is not found either in S.L.P. paper books or the original record of
High Court. However, the stand of Union of India, as is clear from the reply
dated 6.4.1998 of the NPPA sent to the Bulk Drug Manufacturers' Association as
well as the Grounds of SLP is that the number of single ingredient formulators
of the drug was less than 10. According to the statement furnished by the
learned Solicitor General in the course of the arguments, the number of
formulators were only two. The NPPA clarified the position thus:
Association has claimed that the highest market share of single formulator is
21.89%. This claim is based on consideration of sale values of both single
ingredient and combination products of Cloxacillin. However, the highest market
share of single drug ingredient formulation of a particular formulator works
out to 93.07% which is more than the stipulated level of 40%." Thus, there
is controversy regarding the number of formulators and their market share.
The 2nd petitioner in writ petition No. 3449 of 1996, namely, Ranbaxy
Laboratories Ltd. produced the said bulk drug during the relevant period and captively
consumed the same in the manufacture of formulations marketed under the brand
name of Cifran both in India and foreign countries. The petitioner in W.P.No.
1974 of 2000 is Cipla Ltd. Inter alia, it is engaged in the manufacture and
sale of formulations of the drug Cyproflaxacin.
to Ranbaxy Ltd., the annual domestic turnover of the drug for the year ending
March, 1990 was Rs.238 lacs and according to the Cipla Ltd., it was Rs.243 lacs
excluding the hospital and institutional sales to the extent of 15%. It is
therefore contended that the drug stands excluded under clause (i) of para
22.7.2 of the Drugs Policy. It is their further contention that there was no
monopoly situation as contemplated by clause (ii) inasmuch as there was no
single formulator having 90% or more market share in the retail trade as per
ORG data. The said turnover was calculated on the basis of estimated
consumption purportedly arrived at with reference to the data relating to sales
formulations given in ORG publication. The quantum of consumption was then
multiplied by the then prevailing market price. However, a different method of
calculation of turnover was spelt out in the representation dated 7.3.1995
submitted by Ranbaxy Ltd., to Government of India (vide Ext.B in W.P.No. 3449
of 1996). According to that calculation, the turnover is Rs.280 lacs.
counter-affidavit, the turnover given by the writ petitioners has been
disputed. It is stated that ORG data relates to formulation sales and it does
not give data in regard to quantities and values of bulk drug involved. It was
also stated that Cyproflaxacin was included in the first schedule on the basis
of criterion in clause (i) since the turnover in 1989-90 was taken as Rs.990 lacs
based on the landed cost of imports of the drug. It is then stated that the
data in regard to indigenous production is not available.
High Court merely referred to the contention of the writ petitioners regarding
the turnover and accepted the same on the ground that there was only bald
denial in the affidavit in reply.
the High Court extended the benefit of exclusion under clause (iii) also,
though it was never the case of the writ petitioners.
High Court stated that there were admittedly 16 bulk drug producers and 20
formulators, though, no such case was set up by either of the writ petitioners.
In the ORG data furnished by the petitioner in W.P.No. 3449 of 1996 and in the
representation submitted to the Government of India, only the names of seven
formulators was mentioned. Thus, there was an obvious error in the High Court's
judgment. The plea of discrimination which was raised for the first time in the
rejoinder affidavit filed in W.P.No. 3449 of 1996 also found favour with the
: The writ petitioner seeks exclusion from the purview of DPCO on the basis of
clause (iii) of para 22.7.2 of the Drugs Policy. It is the case of the
petitioner that there were at least 28 bulk drug manufacturers and 20
formulators and no single formulator had more than 40% market share as per the
ORG figures. The names were given in the writ petition. However, the stand
taken in the counter- affidavit filed by the Government of India is that there
were only three manufacturers of the bulk drug and the ORG data does not
disclose the number of bulk drug producers. As regards the formulators, the
stand taken is that the number of single ingredient formulators using the said
bulk drug is not discernible from the ORG data. It is, therefore, contended
that the twin conditions of a minimum of five bulk drug producers and at least
10 formulators are not satisfied. The High Court accepted the plea of the writ
petitioner on the ground that there was only a bald denial in the
counter-affidavit and no specific particulars were given to controvert the
contention of the petitioner. In the order passed by NPPA in response to the
representation of Bulk Drug Manufacturers' Association, it is stated that as
per the records available, there were only three bulk drug manufacturers in the
country during 1989-90. However, the names were not furnished either in this
document or the counter affidavit.
the ORG data, the market share of the formulation sold by the
petitioner-Company was 39.56% (vide annexure at page 38 of the original writ
petition record) which, as pointed out by NPPA, is technically lower than 40%.
We may add that it is perilously close to 40%. It should also be noted that the
writ petitioner did not furnish any details of production to show that the bulk
drug manufacturers mentioned by it or at least five amongst them actually
produced the bulk drug.
: It is the case of the writ petitioner that it manufactures and sells single
ingredient formulation containing the bulk drug Doxycycline in a concentration
of 100 mg per capsule under the brand name of Doxy-1. The annual turnover of
the bulk drug Doxycycline, according to the writ petitioner, was Rs. 316 lacs.
seen from the tabular statement appended to Annexure-A to the writ petition at
pages 85-86 of the original record, the petitioner arrived at the total
domestic consumption of the bulk drug with reference to the ORG data pertaining
to sales of formulations in the market. It is the further case of the writ
petitioner that as per ORG data, there were at least 19 formulators producing Doxycycline
based formulations and none of them had more than 40% of market share in retail
trade. Therefore, the petitioner claimed that the bulk drug Doxycycline should
have been excluded from the purview of price control in terms of under clause (i)
& (iii) and that monopoly situation contemplated by clause (ii) has no
application because no single manufacturer had 90% or more market share in
stand of the Government has been that the turnover of Doxycycline was above 400
lacs during the relevant period and therefore it comes under price control.
Further, it is their case that clause (ii) has no application because the
turnover is above 400 lacs. It is also averred in the counter affidavit that
the retail trade sale data is not relevant since the need to calculate market
share does not arise. Moreover, since undisputably, there is only one
manufacturer of the bulk drug, i.e., Ranbaxy Limited, the exclusion criteria
laid down in clause (iii) of para 22.7.2 is not applicable.
paragraph 89 of the judgment under appeal, the High Court having merely
referred to the arguments of the learned counsel for the petitioner, accepted
the case of the petitioner on the ground that in the affidavit-in-reply filed
by the Government, there was only bald denial and that the particulars were not
the High Court was under an apparent misapprehension that the Writ Petitioner
sought the benefit of exclusion under clause (iii) also. The core controversy,
as already noticed, is regarding the quantum of turnover. The Union of India
took the stand that the turnover was above 400 lacs. In the statement filed by
the learned Solicitor-General at the time of argument, the figure was given as
471.77 lacs. However, the appellant did not furnish any details as to the
calculation of turnover.
The writ petitioner—USV Limited is a manufacturer of the bulk drug 'Glipizide'
which is sold under the brand name of Glynase. It does not appear that there
was any other producer of bulk drug during the relevant period. It is the case
of the writ petitioner that the annual turnover for the year ending 31st March,
1990 was only Rs. 82 lacs and that clause (ii) is not therefore attracted. The
writ petitioner estimated the turnover figure by arriving at the consumption of
the bulk drug in various formulations and by multiplying the same by the MRP
(Maximum Retail Price).
ORG data relating to sales of formulations was furnished.
stand of the Central Government is that production data was not available for
the year 1989-90 and the turnover of the bulk drug was determined by the expert
group on the basis of the landed cost of imports during the year to the tune of
Rs.322.50 lacs. As there was only one formulator as reported in ORG survey of
March, 1990, monopoly situation was considered to be existing "since one
formulator was having 100% market share as on 31.3.1990".
the assertion of the writ petitioner that as per ORG data furnished in Ext.F to
the writ petition, there was no single formulator having 90% or more market
share in retail trade, it is pointed out in Paragraph (iv) of the
counter-affidavit that Ext.F includes formulations based on the bulk drugs
other than Glipizide. It is further stated in the same para of the counter that
there is only one formulation, namely, Glynase based on Glipizide and in respect
of that, the writ petitioner had 100% market share.
the dispute mainly centers round the quantum of turnover.
High Court observed that "even assuming that the petitioners were the sole
manufacturers of the said drug, as the turnover was below Rs.100 lacs, the
monopoly situation, as envisaged in para 22.7.2 (ii) of Drug Policy, 1994 does
not apply and as such the said drug ought to be kept out of the purview of
DPCO, 1995". The plea of discrimination between this drug and another
anti- diabetic drug known as Insulin also found favour with the High Court.
are of the view that the approach of High Court in considering the question of
applicability of criteria laid down in the Drugs Policy in relation to each of
the above drugs is not correct and the High Court failed to address itself to
various crucial aspects as indicated below:
ORG data does not give full and clear picture of the turnover of bulk drug. ORG
data relates to sales of formulations made either exclusively out of the bulk
drug or in combination with other drugs.
formulations containing the particular bulk drug either wholly or in part reach
the consumers through normal trade channels. The particulars of sales of such
formulations entering the retail market are compiled by ORG. Bulk drug sales as
such are not covered by ORG data. At best, from ORG data, it may be possible to
deduce the consumption of bulk drug on estimated basis especially if it is the
only drug used in that formulation. Moreover, direct sales to institutions such
as hospitals and Government organizations are not reflected in ORG compilation.
According to the certificate filed in some of the cases, such sales would be
about 14%. It is also borne out by the same certificate issued by the Associate
Research Director of ORG (Ext. 'C' to W.P.No. 1974 of 2000 and Annexure-I to
written submissions) that out of this 86%, the ORG data covers about 90% of the
retail market sales. This is what the certificate says:— "The Retail Pharma
Market in India contributes to 86% of the total market and the remaining 14%
towards Hospital and Institutional sales.
would like to confirm that out of this 86% of Retail Pharma Market, ORG-MARG
covers around 90% through the Retail Store Audit (RSA)."
One more aspect which deserves notice is that from the ORG data, it may not be
possible to ascertain whether the formulation is made up of single ingredient
of the bulk drug or it has multi- ingredients. We have held that the Government
of India's view that single ingredient formulators alone should be taken into
account for the purpose of the criteria in clause (iii) of para 22.7.2 of Drugs
Policy cannot be said to be against the policy or otherwise unreasonable.
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.
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 writ petitioners and there is no good reason why they should
withhold all this relevant information and harp on ORG data. There is no need
to resort to guess-work when the actual figures are available at the doorsteps
of the respondents. Moreover, some of the respondents have arrived at the
estimates by varying methods without reference to actual data available with
them. For instance, in the case of the drug Cyproflaxacin, we have adverted to
different methods of calculation given by the writ petitioners which yield
different results. If we go by the estimates of turnover made by the
respondents, there is vast difference between the value of the bulk drug worked
out by them and the sale value of formulations.
in relation to some of the drugs, there is vast variation between the quantity
produced and imported and the quantity said to have been utilized in
formulations sold in the market. These factors should have put the High Court
on guard to subject the petitioners' version to close and critical scrutiny.
When the burden was on the writ petitioners to substantiate their plea of
violation of Article 14 and when the plea predominantly rested on facts and
figures, the High Court should have examined the intrinsic worth and
credibility of the version put forward with regard to the turnover figures. The
High Court oversimplified the whole issue by addressing itself to the only
question whether there was effective rebuttal of the averments by the Union of
India. The callousness on the part of the officials concerned in not meeting
the points raised squarely and leaving the scope for ambiguity should not, in
our view, be a ground to accept whatever is falling from the writ petitioners.
The material placed before the Court should have been critically examined
before reaching a conclusion that Article 14 is violated. The High Court should
have also examined whether the writ petitioners withheld the relevant data
which they were in a position to produce and if so, what would be its effect.
None of these aspects received attention of the High Court. Before striking
down the legislation, the High Court should have realized that those who
challenged the legislation should lay firm factual foundation in support of
their plea. The complaint of violation of norms set out in the policy leading
to the alleged infraction of Article 14 depends, in the ultimate analysis, on
facts and figures. As already observed, ORG data is neither comprehensive nor
conclusive and moreover in regard to some of the drugs, the data does not in
unequivocal terms, support the case of the writ petitioners. In such a
situation, further probe and analysis was required which the High Court failed
to do. The version of writ petitioners regarding the quantum of turnover was
accepted to be correct on its face value. That apart, in the light of the clarification
given by us that single ingredient formulators alone could be legitimately
taken into account in the context of clause (iii), the need for reconsideration
by the High Court becomes inevitable. We are, therefore, of the view that the
crucial issues regarding the applicability of criteria laid down in para 22.7.2
of the Drugs Policy require reconsideration by the High Court from various
angles indicated supra in the light of the legal position enunciated and the
observations made in this judgment.
have broadly indicated the aspects on which the High Court could have focused
its attention before reaching the conclusion it did. Nothing precludes the High
Court from having regard to other aspects or material which it considers
relevant to test the correctness of the writ petitioners' claims. However, we
would like to clarify one thing. If, on reconsideration, the turnover of any
drug is found to be very close to the figure—400 or 100 lacs, as the case may
be, the relevant criterion must be deemed to have been satisfied. As we said
earlier, mathematical accuracy is not what is required.
There is one more point which we have to deal with, i.e., the alleged
discrimination between one drug and another. The High Court upheld such plea
raised in rejoinder affidavit in relation to the drugs 'Cyproflaxacin' and 'Glipizide'.
We unhesitatingly vacate the findings of the High Court in this regard because
we are of the view that the reasons given by the High Court for upholding such
plea are too tenuous to merit even prima facie acceptance.
the case of Cyproflaxacin in W.P.No. 3449 of 1996 it was contended that two
bulk drugs, namely, Mefenamic Acid and Amikacin Sulphate were wrongly and
arbitrarily deleted from the DPCO, 1995. It is difficult to comprehend as to
how there could be infraction of Article 14 merely because a few bulk drugs
were excluded from the purview of DPCO on a reconsideration. The exclusion of
some drugs, even if such exclusion is unjustified, cannot be a ground to claim
exclusion of other drugs on the so called principle of parity. Logically, if
the High Court's view has to be accepted, the entire Schedule should be
invalidated for the simple reason that one or two drugs, which were not
eligible for exclusion in the light of the policy guidelines were excluded. It
would then lead to a startling result frustrating the very objective of
regulating the price of essential drugs. That apart, the turnover figures of
the said two drugs furnished by the writ petitioner and referred to by the High
Court, do not establish that they fall within the policy guidelines. Regarding Mefenamic
Acid, what all is stated in paragraph 16 of the rejoinder affidavit is that the
turnover of this drug has been "over Rs.4 crores between 1988-89 to 1991-92
and yet it was excluded for reasons not known to the petitioners".
has been stated as to how the turnover for the relevant year was arrived at. No
information was furnished regarding the number of bulk drug producers and
formulators and their market share.
the petitioner made only a halfhearted attempt to put forward a plea of
discrimination, but, it succeeded in its attempt.
to the other drug Amikacin Sulphate, even according to the petitioner, the
import value of the drug in 1989-90 was Rs.3.5 crores, which is much below the
limit of Rs.4 crores and even if there was a single formulator having a market
share in excess of 40%, that does not make any difference. That apart, the
Government of India clarified in one of the counter affidavits filed in the
High Court that on the scrutiny and verification of details submitted by the
manufacturers, these two drugs were subsequently deleted from the First
Schedule having regard to the criteria laid down in the policy.
have, therefore, no hesitation in reversing the conclusion of the High Court
that the exclusion of the said two drugs from DPCO amounted to hostile
Regarding 'Glipizide', the plea of discrimination between this drug and another
anti-diabetic drug known as Insulin, found favour with the High Court. The High
Court, in paragraph 90 of the judgment referred to the argument that Insulin
having 441 lacs turnover as on 31st March, 1990 was included in DPCO of 1995,
but subsequently excluded from price control and held that there was
discrimination on that account. The High Court evidently proceeded on an
erroneous assumption that Insulin was excluded from the schedule. The averments
in paragraph 22 of the writ petition No.5219/1996 are otherwise. The plea of
discrimination was aimed at the drug known as Glibelclamide, which was excluded
from the DPCO of 1987 and continued to remain excluded from the DPCO of 1995.
The respondent did not even aver that the said drug had the turnover of more
than 100 lacs and therefore it would fall within the mischief of clause (ii).
On the basis of a bald plea, the infraction of Article 14 ought not to have
been countenanced. The finding of the High Court in this regard is palpably
now summarize the conclusions as under:
Where the Central Government as the delegate of legislative power announces a
rational policy in keeping with the purposes of enabling legislation and even
lays down specific criteria to promote the policy, the criteria so evolved
become the guide-posts of its legislative action. While classifying the drugs
for the purpose of price control, it is not open to the Government to flout or
debilitate the set norms which it professed to follow in the interest of
transparency and objectivity. Otherwise, there will be an element of
arbitrariness and the delegated legislation will not withstand the test of
expression 'turnover' in Drug Policy, 1994 represents the sale value of bulk
drug sold as such or in the form of formulations.
Export sales should not be taken into account while computing turnover.
sum total of production and imports of bulk drug cannot be equated to turnover,
though they are not altogether irrelevant in calculating the turnover.
data does not give exhaustive account of turn over of bulk drug. It may furnish
the basis for estimating the turnover, but is not the sole guide.
the purpose of criterion No.(iii) of the Drug Policy, the single ingredient
formulators alone ought to be taken into account as clarified by the Govt. of
Burden lies on those who challenge the legislation on the ground of violation
of Article 14 to make out their case by furnishing all the relevant material
which is within their reach and knowledge. There should be frank disclosure of
material facts, more so, when the plea is founded on certain factual aspects.
The mere vagueness or lack of clarity in the stand taken by the Union of India
does not by itself advance the case of the writ petitioners.
plea of writ petitioners ought to have been tested and subjected to scrutiny in
the light of all relevant factors instead of merely considering whether the
particulars furnished by the petitioners were effectively controverted or not.
Such an approach of the High Court is wholly impermissible while deciding the
validity of legislation—plenary or delegated, from the stand point of Article
plea of discrimination between one drug and another is unfounded and should not
have been accepted by the High Court.
the result, the judgment of the High Court is set aside and the writ petitions
out of which these appeals arise shall stand restored to the file of the High
Court and the High Court will have to consider afresh the relevant aspects
concerning the criteria laid down in para 22.7.2 of the Drug Policy, 1994 in
relation to each drug, having due regard to the observations made in the
High Court may endeavour to expedite hearing of the writ petitions.
The appeals are accordingly allowed without costs. We also consider it just and
proper to give liberty to the appellant and the concerned statutory authorities
to recover 50% of the 'over charged' amounts pending fresh determination by the
we direct stay of recovery of 50% of the 'overcharged' amount subject to the
payment of remaining 50% within the period of four weeks from the date of
communication of the amount payable by each of the writ petitioners.