SECRETARY, MINISTRY OF CHEMICALS AND FERTILIZERS GOVERNMENT OF INDIA v. M-S. CIPLA LTD. AND ORS

Citation: [2003] SUPP. 2 S.C.R. 177

Court: Supreme Court of India

Bench: S. RAJENDRA BABU, P. VENKATARAMA REDDI, ARUN KUMAR

Judgment text

SECRETARY, MINISTRY OF CHEMICALS AND FERTILIZERS GOVERNMENT OF INDIA v. M/S. CIPLA LTD. AND ORS. AUGUST l, 2003 [S. RAJENDRA BABU, P. VENKATARAMA REDDI AND ARUN KUMAR, JJ. ) ' Constitution ofIndia, 1950--Article 14-Drugs (Price Control) Ordrtr, 1995-First Schedule-Drug Policy, 1994-Para 22. 7. 2-Bulk drugs and their formulations-:-lnclusion ofbulk drugs in First Schedule to Control Order of 1995-Pricefixation by Government and directing manufacturers to deposit overcharged amount-Writ petitions challenging the direction-High Court holding that drugs should not have been brought within the Control Order'as inclusion ofdrugs is opposed to the norms laid down by Central Government .

D in Drug Policy and, therefore, delegated legislative power exercised by Government arbitrary and violative of Article 14-Justification of-Held: Approach of High Court not correct in applying the criteria laid down in Drug Policy in relation to each ofthe drugs-Further, by classifying the drug for price control Government should not flout the norms which it proposed to . follow in the public interest of transparency and objectivity-Delegated legislation-Administrative law. Words and Phrases: 'Turnover'-Meaning of in the context ofDrug Policy, 1994. Central Government issued Drug Policy of 1994 and set out price control criteria for drugs. The first criteria of including the drugs un PA 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.

As per 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 0e 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 ci. mongst them actually produced the bulk drug. 7. 7. Doxycyc/ine: It is the case ofthe writ petitioner that it manufactures and sells single ingredient formulation containing the bulk drug Doxycycline in a concentration of I00 mg per capsule under the brand name of Ooxy-1. The annual turnover of the bulk drug Doxycycline, according to tbe writ petitioner, was Rs. 316 lacs.

It is 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 retail trade. The stand ofthe 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 t~at 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. In 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 der. ial ·and that the particulars were not controverted. Moreover, the High Court was under. an apparent misapprehension that the Writ Petitioner sought the benefit ofexclusion 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 ofargument, the figure was given as 471. 77 lacs. However, the appellant did not furnish any details as to the calculation of turnover. 7. 8. Glipizide: 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 fonnulations and by multiplying the same by the MRP (Maximum Retail Price). The ORG data relating to sales of formulations was furnished.

The 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 SECY. MINISTRYOF CHEMICALS AND FERTILIZERS,GOVT. OF INDIA 1•. CIPLA LTD. [REDD! , J. ) 197 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 a$ on 31. 3. 1990". Disputing 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 o~ the counter that there is only one formulation, namely, Glynase based on Glipizide and in respect of that, the writ petitioner had l00% market share. Thus, the dispute mainly centers round the quantum of turnover.. The High Court observed that "even assuming that the petitioners were the sole manufacturers of the said drug, as the turnover was below Rs. I00 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 dmg and another anti- diabetic drug known as Insulin also found favour with the High Court. 8. 1.

We 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: 8. 2. 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. The 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-1 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. I would like to confirm that out of this 86% of Retail Phanna Market, ORG-MARG covers around 90% through the Retail Store Audit (RSA). " 8. 3. 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 ~eld that the Government of India's view that single ingredient fonnulators 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. 8. 4. Sales of bulk drugs effected during the year by bulk drug producers including some of the respondents herein would have furnished the best indicia of domestic sale turnover of bulk drug. But, those details were not disclosed. Secondly, if the bulk drug produced was consumed by any bulk drug producer or importer and the drug was sold in the fonn of fonnulations, the statistics regarding the quantum of bulk drug utilized in such fonnulations 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. Moreover, 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. SECY. MINISTRY OFCHEMICALS AND FERTILIZERS,GOVT. OF INDIA 1•. CIPLA LTD. [REDDl. J.

) 199 8. 5. 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 offic;·lls ;oncemed 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 ofthe writ petitioners. -f 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 <:riteria 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. 8. 6. We 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. 8. 7. 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 'Cyprotlaxacin' ·"\ 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. 8. 8. In 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". Nothing has been stated as to how the turnover for the relevant year was arrived at. No infonnation was furnished regarding the number of bulk drug producers and fonnulators and their market share. Evidently, the petitioner made only a halfhearted attempt to put forward a plea of discrimination, but, it succeeded in its attempt. Coming 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 fonnulator 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 SECY. MINISTRYOF CHEMICALS ANDFERTILIZERS,GOVT. OF INDIA 1•. CIPLA LTD. [REDD! ,J. J 20} Schedule having regard to the criteria laid down in the policy. We have, therefore, no hesitation in reversing the conclusion of the High Court that the P. xclusion of the said two drugs from DPCO amounted t. to hostile discrimination. 8. 9. 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 averrnents in paragraph 22 of the writ petition No. 521911996 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 wrong. 9. We now summarize the conclusions as under: 1.

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 guideposts 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 Article 14. 2. The expression 'turnover' in Drug Policy, 1994 represents the sale value of bulk drug sold as such or in the form of formulations. 3. Export sales should not be taken into account while computing turnover. 4. The sum total of production and imports of bulk drug cannot be equated to turnover, though they are not altogether irreleva~t in calculating the turnover. 5.

ORG data does not give exhaustive account of tum over of bulk drug. It may furnish the basis for estimating the turnover, but is not the sole guide. 6. For 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 India. 7. 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. 8.

The 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 14. 9. The plea of discrimination between one drug and another is unfounded and should not have been accepted by the High Court. 10. In 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 judgment. The High Court may endeavour to expedite hearing of t~e writ petitions.

11. The appeals are accordingly allowed without costs. We also consider it just and proper to give liberty to the appellant and the SECY. MINISTRYOFCHEMICALS ANDFERTILIZERS,GOVT. OFINDIA''· CIPLA LTD. [REDD! , J. ) 203 concerned statutory authorities to recover 50% of the 'over A charged' amounts pending fresh determination by the High Court. Accordingly, 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. B N. J. Appeal allowed