Bombay High Court
Indian Drugs Manufacturers ... vs Union Of India on 22 December, 2011
Bench: P. B. Majmudar, R. M. Savant
KPP -1- WP No. 2368 of 1996
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 2368 OF 1996
ALONG WITH
NOTICES OF MOTION NOS. 354 OF 1998, 375 OF 1998, 1 OF 1999 AND 271
OF 2009
1. Indian Drugs Manufacturers Association, )
being a registered Society and Trust registered )
under the provisions of Societies Registration )
Act, 1960 and the Bombay Public Trust Act, )
1950 and having its office at 102-B, Poonam
Chambers, Dr. Annie Besant Road, Worli,
Bombay-400 018.
)
)
)
2. I.A. Alva of Bombay, Indian Inhabitant, )
being the Secretary General of the 1st Petitioner,)
residing at 23, Oxford Chambers, Clare Road, )
Byculla, Bombay-400 008 )
3. Organization of Pharmaceutical Producers )
of India, being a Company incorporated under )
Section 25 of the Companies Act, 1956, a non- )
profit organisation having its registered office )
at Cooks Building, 1st floor, D.N. Road, )
Bombay-400 001 )
4. R.D. Joshi of Bombay, Indian Inhabitant )
being the Secretary General of the 3rd )
Petitioner residing at Kamal Pushpa, B/23, )
6, Bandra Reclamation, Bandra (West), )
Bombay-400 050 )...Petitioners
versus
1. Union of India )
2. Secretary, Department of Chemicals and )
Petrochemicals, Ministry of Chemicals and )
Fertilizers, having his office at Shastri Bhavan, )
::: Downloaded on - 09/06/2013 18:01:45 :::
KPP -2- WP No. 2368 of 1996
New Delhi-110 001 )
3. Joint Secretary to the Government of India, )
Department of Chemicals and )
Petrochemicals, Ministry of Chemicals and )
Fertilizers, having his office at Shastri Bhavan, )
New Delhi-110 001 )..Respondents
Mr. N.H. Seervai, Senior Advocate, along with Mr. Sharan Jagtiani, Ms. Gulnar
Mistry and Mr. Shaukat Merchant, instructed by M/s. M & M Legal Ventures, for
the petitioners.
Mr. Parag Tripathi, Additional Solicitor General, along with Dr. G.R. Sharma, Mr.
Amar Ahluwalia, Mr. Kunal Bahri, Mr. Vinod Joshi and Mrs. Purnima Awasthi for
the respondents.
CORAM: P.B. MAJMUDAR &
R.M. SAVANT,
JJ.
Judgment reserved on : 30
September, 2011
th
Judgment pronounced on : 22 December, 2011
nd
JUDGMENT: (Per R.M. Savant, J.)
The question which arises for consideration in the above petition is
whether the Respondents have the power and authority to issue the impugned
notices invoking paragraph 7 (2) of the Drugs (Prices Control) Order, 1979 read
with paragraph 14 of the Drugs (Prices Control) Order, 1987 and para 12 of the
Drugs (Prices Control) Order, 1995 after the repeal of the Drug (Prices Control)
Order, 1979.
KPP -3- WP No. 2368 of 1996
2. The main substantive reliefs sought in the above petition are prayer
clauses (a) and (b) of the petition which read as under:
"(a) For the following declaration of this Hon'ble Court:
(i) that on a true construction of the DPCO, 1979 read with the
DPCO, 1987 and DPCO, 1995, only those amounts which had been
finally determined to be due and payable by a manufacturer and
which had actually accrued during the continuance of the DPCO,
1979, and which satisfied the tests of Constitutional and Essential
Commodities Act requirements, can be recovered from the concerned
manufacturer for deposit in the DPEA;
(ii) that under no other circumstances can the Respondents
purport to invoke the provisions of para 7 (2) and 17 of the DPCO,
1979, after its repeal with effect from 26th August, 1987;
(iii) that the impugned Notice (Specimen copy-Exhibit A hereto)
and all similar notices issued by the Respondents to the members of
the 1st and 3rd Petitioners are all issued without the authority of law,
being ex-facie ultra vires the DPCO, 1979, 1987 and 1995, ultra vires
Articles 14, 265 and 300A of the Constitution of India and are null
and void and of no legal effect whatsoever;
(iv) That the Respondents are not authorised or entitled in law
to issue to the members of the 1st and 3rd Petitioners such notices in
the future;
(b) For a writ of certiorari or a writ in the nature of certiorari or
any other appropriate writ, order or direction under Article 226 of
the Constitution of India calling for the records of the case and after
going into the legality of the same, quashing and setting aside the
impugned notice Exhibit "A" hereto as also all similar notices issued
by the Respondents to the members of the 1st and 3rd Petitioners."
3. The factual matrix involved in the petition can be stated thus:
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4. The Petitioner No. 1 is a society registered under the provisions of
the Societies Registration Act, 1860. The Petitioner No.1 is also a Public Trust
registered under the provisions of the Public Trusts Act, 1950 and is an
Association of the Indian Drug Manufacturers who have about 700
manufacturers of drugs and pharmaceuticals as its members. It is averred in the
petition that the Petitioner No.1 has been formed to look after the interests of its
members and in particular to take up grievances on their behalf both with the
Government and also for taking legal proceedings in Court to protect their
interests. The above petition has been filed by the Petitioner No.1 for and on
behalf of its concerned members to redress the grievances involved in the above
petition. The Petitioner No.3 to the above petition is also an organization of drug
manufacturers and is a non-profit organisation incorporated under the
provisions of Section 25 of the Companies Act, 1956. The Petitioner No.3 has
also been formed to look after the interests of its members and in particular to
take up grievances of its members, both with the Government and for initiating
legal proceedings to protect their interest. The above petition has also been filed
by the Petitioner No. 3 for and on behalf of its members to redress their
grievances. The Respondent Nos. 2 and 3 to the above petition are the Officers
of the Central Government exercising powers and functions and discharging
duties under the provisions of the Drugs (Prices Control) Orders, 1979, 1987 and
1990 (for short "the DPCO") made under the Essential Commodities Act, 1955.
KPP -5- WP No. 2368 of 1996
5. The DPCOs are issued by the Central Government in exercise of the
powers under Section 3 of the Essential Commodities Act, 1955 ("the said Act"
for short). The DPCO, 1970 was the first DPCO, made under the said provision.
Thereafter, the DPCO, 1979 came into force on 31st March, 1979, superseding
the DPCO, 1970. In terms of paragraph 33 of the DPCO, 1979, the DPCO, 1970
stood repealed and ceased to operate to the extent mentioned in the repealing
DPCO, 1979. The DPCO, 1979 conferred power on the Respondent No.1 to fix
the retention price and the pooled price for the sale of bulk drugs specified in the
First and Second Schedules. The said power was in terms of paragraph 7 of the
DPCO, 1979. In terms of para 10, the retail price of the formulation was to be
fixed. Under the said DPCO, 1979, the Respondent No.1 was required to
maintain an account to be known as Drug Prices Equalisation Account ("DPEA"
for short). In terms of the said paragraph 17, the manufacturer, importer or
distributor, as the case may be, was required to deposit the amount determined
under sub-paragraph (2) of paragraph 7, i.e. the excess of the common selling
price or, as the case may be, pooled price over its retention price in the DPEA.
6. In terms of paragraph 25 (1) of the DPCO, 1979, every manufacturer
owed a duty to maintain records relating to the sales turnover of individual bulk
drugs manufactured by him and the sales turnover of formulations packwise and
also such other records as may be directed from time to time by the Government.
By sub-clause (2) of the said paragraph, every manufacturer was required within
KPP -6- WP No. 2368 of 1996
six months of the close of the accounting year to submit to the Government
information for that year in Form 6. In terms of sub-clause (3) of paragraph 25,
every dealer or manufacturer was required to maintain cash memos or credit
memos, books of accounts and records of purchase and sale of drugs and further
required to make them available for inspection by the Government. A reference
to the aforesaid provisions of the DPCO, 1979 would be made in the latter part of
this judgment.
7.
On 26th August, 1987, the DPCO, 1979 was repealed by the DPCO,
1987, in exercise of the powers conferred upon the Respondent No.1 under
Section 3 of the said Act. From the point of view of the present petition,
paragraphs 14 and 30 are relevant. Paragraph 14 is the recovery clause and
paragraph 30 is the clause of savings and repeal. Paragraph 22 of the DPCO,
1987 contains similar provisions to those contained in paragraph 25 of the
DPCO, 1979 as regards the maintenance of records and production thereof for
inspection by the Government.
8. DPCO, 1987 was repealed by the DPCO, 1995 on 6th January, 1995
which was also made in exercise of the powers conferred on the Respondent No.
1 by Section 3 of the said Act. Paragraphs 12 and 27 of the DPCO, 1995 are
relevant. Paragraph 12 contains provisions identical to those contained in
paragraph 14 of the DPCO, 1987. Paragraph 27 pertains to repeal and saving
KPP -7- WP No. 2368 of 1996
clause. The said DPCO, 1995 also contains a paragraph which was paragraph 20
pertaining to the maintenance of records and production thereof for inspection
by the Government. The aforesaid paragraphs of DPCO, 1987 and DPCO, 1995
would also be referred to in the latter part of this judgment.
9. A specimen copy of the impugned notice issued to the members of
the Petitioners is annexed as Exhibit-A to the petition. By the said notice, which
is in the nature of a show cause notice, the members were directed to furnish
details in the enclosed format for the purposes of determining the liability of the
concerned Company, if any, under paragraph 7 (2) of the DPCO, 1979. It
appears that several such notices have been issued alleging that the concerned
manufacturers who are manufacturing formulations based on certain bulk drugs
during the currency of the DPCO, 1979 and seeking information from them
regarding the same for the period 1979 to 1987. The said notices were replied to
by the members of the Petitioners by stating that the Respondents had no power
or authority or jurisdiction to issue such notices. It is the case of the Petitioners
that they made representations through their Office-bearers in respect of the said
notices in writing as well as personally but did not result in any decision being
taken by the Respondents and, therefore, ultimately were constrained to file the
instant petition questioning the power and authority of the Respondents to issue
such notices.
KPP -8- WP No. 2368 of 1996
10. Since the said notices are under challenge, it would be gainful to
reproduce paragraph 2 of the said notice dated 11th June, 1996 which is annexed
to the petition as Exhibit-A.
"2. In order to determine the liability of your Company, if any, in
respect of the above mentioned bulk drug under para 7 (2) of the
DPCO, 1979 read with relevant provisions under the DPCO,
1987/1995, you are required to furnish the details of
procurement, source of procurement including your own
production, quantity procured, prices of procurement and its
utilisation thereof, etc. of the said bulk drug in the enclosed
proforma duly certified by the Chairman/Managing Director or by
any authorised officer of the Company approved by the Board of
Directors."
11. The Respondents herein have filed two affidavits-in-reply. The first
affidavit is filed by one Satish Kumar Ohri, Under Secretary, DPEA Cell. The said
affidavit is dated 29th July, 1998. In the said affidavit, the background leading to
the issuance of DPCOs has been mentioned. It has been stated that the DPCOs
are issued under the powers conferred by Section 3 of the Act. It is further stated
that DPCO, 1979 was preceded by the report of the Jaisukhlal Hathi Committee
which looked into the various aspects of drug price control and which had
submitted its report in the year 1979. It is further stated that the DPCO, 1979
which was issued on 31st March, 1979 took into consideration the
recommendations of the said Hathi Committee. On the basis of the DPCO, 1979,
the prices of the bulk drugs and formulations during the year 1980-81 were fixed
by the Government. It is further stated that 12 Companies aggrieved by the said
KPP -9- WP No. 2368 of 1996
price fixation had filed a Writ Petition in the Delhi High Court. The said writ
petition was allowed and the price fixation done by the Government in respect of
the bulk drugs was quashed and set aside. Aggrieved by the decision of the Delhi
High Court, the Union of India had filed a Special Leave Petition in the Apex
Court. The Apex Court in the judgment reported in 1987 (2) SCC 720 in the
matter of Union of India and another vs. Cynamide India Limited and another,
upheld the validity of the provisions of the DPCO, 1979 as also the price fixation
carried thereunder. It is further stated that during the period of litigation, the
pharmaceutical Companies had not scrupulously followed the provisions of the
DPCO, 1979 which had resulted in accrual and undischarged liabilities to the
DPEA. Subsequent to the said judgment in Cynamide's case, the Government was
entitled to make recoveries. One of the categories of the manufacturers against
whom recoveries were liable to be made was the category of manufacturers of
formulations who are required to deposit into the DPEA the excess amount
determined by the Government in respect of those quantity of drugs which had
been procured either indigenously or through imports for prices less than those
allowed by the Government while fixing the prices of formulations. It is stated
that the unauthorised retention of amount under para 7 (2) of DPCO, 1979 would
run into several hundred crores of rupees which cannot be allowed to be retained
by the members of the Petitioners. It is further stated that though the DPCO,
1979 has been repealed by virtue of the saving clause contained in paragraphs 14
and 30 of the DPCO, 1987 and paragraphs 12 and 27 of the DPCO, 1995, it is
KPP -10- WP No. 2368 of 1996
amply clear that if a liability has accrued under the provisions of the DPCO,
1979, the concerned manufacturers/importer or distributor, as the case may be,
has to deposit the relevant amount in the DPEA. It is further stated that the
liability has accrued under the DPCO, 1979 when the manufacturer has used the
bulk drug in question in the formulation. It is stated that after the issuance of
DPCO, 1979, there were around 345 bulk drugs under price control and it is
further stated that the process of recovery after the judgment in Cynamide's case
was initially confined to 47 bulk drugs due to administrative reasons. However,
thereafter the process was initiated in respect of the remaining bulk drugs by
eliciting details from the manufacturers relevant for the purposes of determining
their liability under para 7 (2) of the DPCO, 1979 read with relevant paragraph of
DPCO, 1987 and DPCO, 1995. It is further stated that in respect of bulk drugs
where no price was fixed by the Government, it is stated that in most of such
cases where no price of bulk drug was fixed by the Government, the drug was
being imported and it was known to the industry as to what was the then
prevailing price of such a bulk drug.
12. In so far as the additional affidavit-in-reply is concerned, the same is
filed by Shri Anil Jain, Under Secretary, Department of Pharmaceuticals. The
background to the issuance of the DPCOs has been reiterated in the said affidavit.
It is stated in the affidavit, the reasons for the delay in initiating the process of
recovery. In the said affidavit, the retention pricing mechanism is explained. It is
KPP -11- WP No. 2368 of 1996
stated that when there is a fluctuation in input costs, the formulator should not
retain the 'unintended benefit'. The reasons for doing away with the DPEA in
the DPCO, 1987 has been stated with reference to the drug policy of 1986. It is
stated with reference to the said policy that a provision was to be made in the
new Drug Price Control Order (DPCO) to ensure that amounts which have
already accrued to the DPEA and those which are likely to accrue as a result of
action in the past are protected and used for the purpose stipulated in the existing
DPEA. It is stated that during the currency of DPCO, 1979, notices were issued.
It is further stated that the Respondents constituted the Drug Price Liability
Review Committee (DPLRC) to look after both the cases of overcharging by the
12 Companies covered by the decision of the Apex Court in Cynamide's case as
well as liabilities under para 7 of the DPCO, 1979. Reference in the said
affidavit is made to the judgment of the Division Bench of the Gujarat High Court
in Cadila Laboratories case. It is stated that the liability of the manufacturer as
assessed by the Central Government was upheld by the Gujarat High Court. It is
further stated that the matter was carried in Appeal to the Apex Court wherein
the Apex Court directed that a fresh quantification be carried out, by reserving its
decision on the issue regarding the legal effect of the repeal of the DPCO, 1979.
It is stated that accordingly a Committee under the Chairmanship of Justice R.C.
Chopra, retired Hon'ble Judge of the Delhi High Court, was constituted and the
report of the Committee has been placed before the Supreme Court. The affidavit
once again states that there were 345 scheduled bulk drugs under the DPCO,
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1979. It is stated that the liabilities under para 7 (2) have accrued on account of
procurement/production of bulk drugs at prices lower than that allowed to the
formulator. It is further stated that the quantification or assessment of this
liability does not suspend its accrual. It is lastly stated that the delay in issuing
notices was on account of the lack of response from the manufacturers and the
disputes raised by manufacturers regarding the proper basis for quantification.
13. Submissions on behalf of the Petitioners by the learned Senior
Counsel Mr. N.H. Seervai.
13.1 That a reading of para 14 of the DPCO, 1987 and para 12 of the
DPCO, 1995 reveals that only those amounts which have been actually
determined to be due and payable by the manufacturers and which are actually
accrued during the continuance of the DPCO, 1979 i.e. between the period 1st
April, 1979 to 25th August, 1987 could be recovered.
13.2 That by issuing the notices for the first time in the year 1996, the
Respondents want to adjudicate the claim purportedly arising under DPCO, 1979
long after its repeal.
13.3 That in the absence of, or determination of any amount under para 7
(2), there cannot be said to be any "accrued liability". The learned Senior
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Counsel relied upon the judgment of the Apex Court reported in 1998 (5) SCC 1
in the matter of Harshad Shantilal Mehta vs. Custodian and others, wherein the
Apex Court has held as under.
"In the present case, the words taxes due occur in a section
dealing with distribution of property. At this stage, the taxes
'due' have to be actually paid out. Therefore, the phrase 'taxes
due' cannot refer merely to a liability created by a charging
section to pay the tax under the relevant law. It must refer to an
ascertained liability for payment of taxes quantified in
accordance with law. In other words, taxes as assessed which
are presently payable by the notified person are taxes which have
to be taken into account under Section 11 (2) (a) while
distributing the property of the notified person. Taxes which are
not legally assessed or assessments which have not become final
and binding on the assessee, are not covered under Section 11
(2) (a) because unless it is an ascertained and quantified
liability, disbursement cannot be made. In the context of Section
11 (2) therefore the taxes due refer to 'taxes as finally assessed'.
The learned counsel also relied upon the judgment of the Orissa High Court
reported in AIR 1970 Orissa 15 in the matter of Gobind Panda vs. Darsan Rout
and the judgment of the Apex Court reported in AIR 1965 SC 1454 in the matter
of State of Rajasthan and others vs. Ghasilal, wherein the Apex Court has held
that until the tax payable in a given case is ascertained, no tax can be said to be
due within Section 16 (1)(b) of the Act, for till then there is only a liability to be
assessed to tax.
13.4 That in issuing the said notice, the Respondents are seeking to
exercise powers not vested in them under DPCO, 1987 or DPCO, 1995 and that
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there is total non-application of mind on the part of the authorities in issuing the
notices without considering the legal position arising out of the repeal of the
DPCO, 1979 and the limited saving clause in DPCO, 1987 and DPCO, 1995; That
the condition precedent for exercise of the said powers viz. determination of the
amount is non-existent.
13.5 That in several cases no price fixation was done in respect of the
drugs in question for which the notices have been issued. The manufacturers
would, therefore, not know as to what prices may have been allowed in the
prices of the bulk drug and, therefore, the provisions of para 7 (2) will not be
attracted.
13.6 That no documentary evidence may be available with the members of
the Petitioners as they were obliged to keep the records only for a particular
period.
13.7 That since the power of review has been taken away in view of the
repeal of DPCO, 1979 and therefore since remedy itself has been taken away, the
Respondents are dis-entitled to invoke para 7 (2) of the DPCO, 1979.
13.8 That the effect of repeal of a statute is to render that statute non-
existent. Once repealed, a statute stands erased from the statute books and it is
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to be treated as it never existed. Further, by issuing notices, the Respondents are
seeking to keep alive a provision which has been repealed, for all times to come.
13.9 That Parliament in its plenary powers can legislate an outright repeal
which will not only destroy the effectiveness of the repealed Act but will also
operate to destroy all existing inchoate rights and proceedings. In order to
support the said contention, the learned Senior Counsel relied upon the decision
of the Apex Court reported in 2009 (2) SCC 1, in the matter of Mahmadhusen
Kalta Shaikh vs. Union of India, wherein the Apex Court has held as under:
" 34. ....(f) If any Central Act is repealed, without making any
provision for savings, the provisions contained in Section 6 of the
General Clauses Act, 1897 will apply. But where the repealing Act
itself contains specific provisions in regard to savings, the express
or special provision in the repealing Act will apply. Section 6 of
the General Clauses Act makes it clear that it will not apply when
a different intention appears in the repealing statute. Where the
provision relating to savings is excluded, the repeal will have the
effect of complete obliteration of the statute. (Vide State of Orissa
v. M.A. Tulloch & Co. (AIR 1964 SC 1284 : (1964) 4 SCR 461, Nar
Bahadur Bhandari v. State of Sikkim, (1998) 5 SCC 39: 1998 SCC
(Cri) 1252 and Southern Petrochemicals Industries Co. Ltd. v.
Electricity Inspector & ETIO, (2007) 5 SCC 447.
35. The repealing Act contains an exhaustive provision relating
to savings in sub-sections (2) to (5) of Section 2. Therefore, the
savings from repeal will be governed by Sections 2 (2) to 2 (5) of
the repealing Act and not by Section 6 of the General Clauses Act,
1897.
36. Parliament in its plenary power, can make an outright
repeal which will not only destroy the effectiveness of the repealed
Act in future, but also operate to destroy all existing inchoate
rights and pending proceedings. This is because the effect of
repealing a statute is to obliterate it completely from the record,
except to the extent of savings. If Parliament specifically excludes
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any saving clause in a repealing Act, or severely abridges the
provision for savings, which it has the power to do, the effect
would be that after the repeal of the statute, no proceedings can
continue, nor can any punishment be inflicted for violation of the
statute during its currency."
The learned Senior Counsel also relied upon the decision of the Apex Court
reported in 1984 (1) SCC 202 in the matter of Qudrat Ullah vs. Municipal Board,
in support of his contention that an enactment stands repealed subject to any
savings which may be made expressly or by necessary implication by the
repealing enactment. The learned Senior Counsel also placed reliance on the
judgment of the Apex Court reported in AIR 1954 SC 688 in the matter of State of
Uttar Pradesh vs. Seth Jagamander Das and others. The Apex Court held that
when a statute is repealed, no prosecution for acts done during the continuance
of the repealed Act can be commenced after the date of its repeal because that
would amount to the enforcement of a repealed or a dead Act. Reliance was also
placed by the learned Senior Counsel to a judgment of this Court reported in
2008 (5) Bom C.R. 746 in the matter of Voltas Ltd. and another vs. Additional
Collector & Competent Authority and others.
13.10 That the provisions of Section 6 of the General Clauses Act, 1897
stood excluded in view of the special provisions pertaining to the recovery of
amounts accrued into the DPEA and since the savings clauses in the DPCOs 1987
and 1995 are extremely limited, no action could have been taken by the
authorities by relying upon the said clauses.
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13.11 That the Division Bench judgment of the Gujarat High Court on which
reliance has been placed by the Respondents in their additional affidavit was
sought to be distinguished by the learned Senior Counsel, and it was submitted
that the said judgment was not binding on this Court. In so far as the said
judgment is concerned, it was submitted by Mr. Seervai that the said judgment is
clearly distinguishable on facts and was decided in an altogether different factual
context. It was further submitted that the provisions of paragraph 7 (2) of the
DPCO, 1979 have been clearly misread, misunderstood and wrongly analysed by
the Division Bench of the Gujarat High Court inasmuch as the said judgment
completely overlooks and ignores the provisions of paragraph 7 (2) (b) of the
DPCO, 1979. It is submitted that if paragraph 7 (2) (b) is considered, there is no
question of liability being incurred automatically as the Government under 7 (2)
(b) may only choose to revise the price of the formulation, after taking such
lower price of the bulk drug into consideration.
13.12 That the said judgment erroneously holds that the power of review
was in any way not available to an order passed under para 7 (2) of the DPCO,
1979.
13.13 That the said judgment erroneously relies upon Section 6 of the
General Clauses Act which clearly does not apply as the DPCOs are not Central
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Act or Regulations having the force of Central enactment. Reliance was placed on
the judgment of the Apex Court reported in AIR 2000 SC page 811 in the matter
of Kolhapur Canesugar Works Ltd. and another vs. Union of India and others.
especially paragraph 33 thereof..
"The Full Bench appears to have lost sight of the position that all
the relevant terms i.e. 'Central Act', 'Enactment', 'Regulation' and
'Rule' are defined in Sections 3 (7), 3 (19), 3 (50) and 3 (51)
respectively of the General Clauses Act. When the term Central
Act or Regulation or Rule is used in that Act reference has to be
made to the definition of that term in the statute. It is not
possible nor permissible to give a meaning to any of the terms
different from the definition. It is manifest that each term has a
distinct and separate meaning attributed to it for the purpose of
the Act. Therefore, when the question to be considered is whether
a particular provision of the Act applies in a case then the clear
and unambiguous language of that provision has to be given its
true meaning and import. The Full Bench has equated a 'rule'
with 'statute'. In our considered view this is impermissible in
view of the specific provisions in the Act. When the Legislature
by clear and unambiguous language has extended the provision
of Section 6 to cases of repeal of a 'Central Act' or 'Regulation', it
is not possible to apply the provision to a case of repeal of an
'Rule'. The position will not be different even if the rule has been
framed by virtue of the power vested under an enactment; it
remains a 'rule' and takes its colour from the definition of the
term in the Act (General Clauses Act). At the cost of repetition
we may say that the omissions in the judgment in M/s. Rayala
Corporation, (AIR 1970 SC 494: 1970 Cri LJ 588) (supra)
pointed out in paragraph 17 of the judgment of the Full Bench
have no substance as they are not relevant for determination of
the question raised for the reasons stated herein."
13.14 That the reliance on paragraph 25 (2) of the DPCO, 1979 in the said
judgment to support the conclusion that the power to determine the liability due
under paragraph 7 (2) (a) of the DPCO, 1979 after the repeal of the said DPCO,
1979 is wholly misplaced as the Division Bench of the Gujarat High Court lost
KPP -19- WP No. 2368 of 1996
sight of the fact that the Government has sufficient powers under paragraph 26 of
DPCO, 1979 to collect/seize the said information and proceed to determine the
liability under paragraph 7 (2) (a) of DPCO, 1979. For all the aforestated reasons,
the learned counsel submitted that the judgment in Cadila's case is wrong and
does not lay down the correct position in law in relation to matters that arise for
consideration in the present case.
14. Submissions on behalf of the Respondents by learned Additional
Solicitor General Shri Parag Tripathi.
14.1 That there is conceptual distinction between accrual of obligation or
incurring of a liability as opposed to its determination and quantification. That
for the accrual of an obligation or incurral of a liability, it is not necessary to
quantify or determine the liability. The learned Additional Solicitor General
placed reliance on the judgment of the Apex Court reported in 2006 (4) Bom.
C.R. 735 in the matter of Sedco Forex International Drilling Inc. vs. Oil and Natural
Gas Corporation Ltd. wherein the Apex Court has held that "the accrual of
liability as a concept is different from quantification of the liability". Reliance was
also placed on the judgments of the Apex Court reported in (1976) 2 SCC 934 in
the matter of Amadalavalasa Cooperative Agricultural and Industrial Society Ltd.
and another vs. Union of India and another and CIT vs. Goverdhan Ltd., (1968) 69
ITR 675.
KPP -20- WP No. 2368 of 1996
14.2 That the question whether a right was accrued or a liability incurred
under the statute before the repeal in each case will depend on the construction
of the repealing statute and the facts of that particular case.
14.3 That in the present case the liability under the DPCO, 1979 arose
during the currency of the DPCO, 1979 where a manufacturer of formulation
utilised the bulk drug in his formulation, either from his own production or
procured from any other source at a price lower than the price allowed to him
under the formulation, then such a manufacturer was not entitled to retain the
excess amount/unintended benefit.
14.4 That the Scheme of DPCO, 1987 as well as DPCO, 1995 was to
protect the liability which was already incurred. This is made clear by the saving
clauses in the respective succeeding DPCOs.
14.5 That the DPCOs are in the nature of a socio-economic measure and if
the interpretation as sought to be put by the petitioners is accepted, it would
negate the purpose of the whole scheme as contained in the DPCOs. . For the said
purpose, the learned Additional Solicitor General relied upon the judgment of the
Apex Court in Cynamide's case (supra). Strong reliance was placed by the
learned Additional Solicitor General on the Division Bench judgment of the
Gujarat High Court in Cadila's case (supra) to contend that the issues that arise in
KPP -21- WP No. 2368 of 1996
the above petition as regards accrual of liability in terms of DPCO, 1979, accrual
of liability even in the absence of quantification, the scheme encompassed in
paragraph 7, the amplitude of the savings clause in DPCO, 1987 and DPCO, 1995,
the obligation of the manufacturer to submit information under paragraph 25 of
the DPCO, 1979, and the purpose of directing the manufacturer to deposit the
amount in the DPEA so that he does not draw profit beyond the permissible limit
have been succinctly dealt with in Cadila's case and ultimately the action of the
Government of recovery against the Company in question in that case was
upheld. It is the submission of the learned Additional Solicitor General that the
judgment in Cadila's case (supra) would have an impact on the issues raised in
the above petition.
Consideration
15. Having heard the learned Senior Counsel for the Petitioners and the
learned Additional Solicitor General for the Respondents, we have given our
anxious consideration to the rival contentions. We have also perused the written
submissions filed by the parties.
16. In the context of the issue that arises for consideration in the above
petition, it would be apposite to reproduce the relevant paragraphs of the DPCOs
1979, 1987 and 1995. They are as under.
KPP -22- WP No. 2368 of 1996
"DPCO, 1979.
"7. Power to fix retention price and pooled price for the sale
of bulk drugs specified in First Schedule or Second schedule
indigenously manufactured as well as imported - (1) Where
a bulk drug specified in the First Schedule or the Second
Schedule is manufactured indigenously and is also imported,the
Government may, having regard to the sale prices prevailing
from time to time in respect of indigenously manufactured bulk
drugs, by order, fix with such adjustments as the Government
may consider necessary:
(a) retention prices for individual manufacturers, importers, or
distributors of such bulk drug;
(b) a pooled price for the sale of such bulk drugs.
(2) Where a manufacturer of formulations utilises in his
formulations any bulk drug, either from his own production or
procured by him from any other source, the price of such bulk
drug being lower than the price allowed to him in the price of
his formulations, the Government may require such
manufacturer -
(a) To deposit into the Drug Prices Equilisation Account
referred to in Paragraph 17 the excess amount to be determined
by the Government; or
(b) To sell the formulations at such prices as may be fixed by
the Government."
10. Calculation of retail price of formulations:- The retail price
of a formulation shall be calculated in accordance with the
R.P. = (M.C. + C.C. + P.M. + P.C.) x
[ 1 + MU ] +ED
[ 100]
Where--
KPP -23- WP No. 2368 of 1996
"R.P." means retail price.
"MC" means material cost and includes the cost of drugs and
other pharmaceutical aids used including overages, if any, and
process loss thereon in accordance with such norms as may be
specified by the Government from time to time by notification in
the official Gazette in this behalf.
"C.C." means conversion cost worked out in accordance with
such norms as may be specified by the Government from time
to time by notification in the Official Gazette in this behalf.
"P.M." means the cost of packing material including process loss
thereon worked out in accordance with such norms as may be
specified by the Government from time to time by notification in
the Gazette in this behalf.
"P.C." means packing charges worked out in accordance with
such norms as may be specified by the Government from time to
time by notification in the Official Gazette in this behalf.
"M.U" means mark-up referred t o in paragraph 1.
"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 as the Government may allow from time to time.
Provided further that where an imported formulation is
repacked, its landed cost plus the cost of packing materials and
packing charges as worked out in accordance with such norms
as may be specified by the Government from time to time, by
notification in the Official Gazette, shall form the basis for fixing
its price.
Explanation.- For the purposes of this paragraph, 'landed
cost' shall mean the cost of import of drug inclusive of customs
duty and clearing charges."
17. Drug Prices Equalisation Account- (1) The Government
shall maintain an account to be known as the Drugs Prices
Equalisation Account to which shall be credited-
KPP -24- WP No. 2368 of 1996
(a) by the manufacturer, importer or distributor, as the case
may be -
(i) The amount determined under sub-paragraph (2) of
paragraph 7;
(ii) the excess of the common selling price or, as the case may
be, pooled price over his retention price;
(b) such other sums of money as the Central Government
may, after due appropriation made by Parliament by law in this
behalf, grant from time to time.
(2) The amount credited under sub-paragraph (1) shall be
spent only :_
(a) for paying to the manufacturer, importer or distributor as
the case may be, the short fall between his retention price
and the common selling price or, as the case may be, the
pooled price for the purpose of increasing the production,
or securing the equitable distribution and availability at
fair prices, of drugs;
(b) for expenses incurred by the Government in discharging
the functions under this paragraph.
(3) Every manufacturer, importer or distributor may, if he has
any claim under clause (a) of sub-paragraph (2), make an
application to the Government and the Government may, in
settling the claim require the manufacturer, importer or
distributor, as the case may be, to furnish such details as may
be specified by it in this behalf.
(4) The Government shall maintain account of all moneys
credited to and expended from out of, the Drug Price
Equalisation Account and such other reports and returns as it
may consider necessary relating to the said account."
DPCO, 1987
"14. Power to recover dues accrued under the Drugs (Prices
Control) order, 1979, into the Drug Prices Equalisation
Account.- (1) Notwithstanding anything contained in this order,
KPP -25- WP No. 2368 of 1996
the Government may, by notice require the manufacturer,
importer or distributor, as the case may be, to deposit the
amount which has accrued on account of the actions under the
Drugs (Prices Control) Order 1979, on or before the
commencement of this Order, into the Drugs Prices Equalisation
Account and the manufacturer, importer or distributor, as the
case may be, shall deposit the said amount into the said account
within such time as the Government may specify in the said
notice.
(2) The existing amount, if any, in the Drugs Prices
Equalisation Account on or before the date of commencement of
this Order, and the amount deposited under sub-paragraph (1)
shall be used for the purposes stipulated in the Drugs (Prices
Control) order, 1979".
"30. Repeal and saving.- (1) The Drugs (Prices Control) Order,
1979 is hereby repealed.
(2) Notwithstanding such repeal, anything done or any action
taken, including any notification or order made, direction given,
notice issued or exemption granted under the Drugs (Prices
Control) Order, 1979, shall, in so far as it is not inconsistent
with the provisions of this Order, be deemed to have been done,
taken, made, given, issued or granted, as the case may be,
within the corresponding provisions of this order."
DPCO, 1995
"12 Power to recover dues accrued under the Drugs (Prices
Control) Order, 1979 and to deposit the same into the Drugs
Prices Equalisation Account.- (1) Notwithstanding anything
contained in this order, the Government may by notice, require
the manufacturer, importer or distributor, as the case may be, to
deposit the amount which has accrued under the provisions of
the Drugs (Prices Control) Order, 1979 on or before the
commencement of this Order into the Drugs Prices Equalisation
Account and the manufacturer, importer or distributor as the
case may be, shall deposit the said amount into the said account
within such time as the Government may specify in the said
notice."
"27. Repeal and saving.- (1) The Drugs (Prices Control) Order,
KPP -26- WP No. 2368 of 1996
1987 is hereby repealed.
(2) Notwithstanding such repeal, anything done or any action
taken, including any notification or order made, direction given,
notice issued or exemption granted under the Drugs (Prices
Control) Order, 1987, shall, in so far as it is not inconsistent
with the provisions of this Order, be deemed to have been done,
taken, made, given, issued or granted, as the case may be, under
the corresponding provisions of this Order."
17. Before we proceed to consider whether the Respondents were entitled
to proceed under DPCO, 1979 by issuing the notices in question, it will be
relevant to note the purport and intent of the DPCOs. The DPCOs have been
framed under Section 3 of the Essential Commodities Act, 1955. The said Act is
referable to Article 39 (b) of the Constitution of India. The DPCOs provide a price
control mechanism by which the Government seeks to control the prices of drugs
so that the ultimate beneficiary is the consumer who then stands to get the drug
in question at an affordable and reasonable price. The concept of the retention
price, pool price and the selling price is, therefore, encompassed in the DPCOs.
The DPCOs by the said price fixing mechanism, inter alia, provide for fixing the
profit margins which a manufacturer would be entitled to. The said price fixation
is done by controlling the prices of the bulk drug which is used in the formulation
by the manufacturer. This was done, in the context of the present petition, by
the method prescribed by under para 11 of the DPCO, 1979. The retail price fixed
for a formulation allows a manufacturer a particular price at which he can buy
the ingredient bulk drug. If he buys the drug at a lower price than the price
KPP -27- WP No. 2368 of 1996
allowed, he has to deposit in the DPEA the difference between the price allowed
and the lower price at which he has bought the bulk drug. By this process, an
equilibrium is sought to be struck by the Government so that the manufacturer
gets the bulk drug at the controlled price resulting in the retail price of the bulk
drug being controlled in a fashion so as to benefit the ultimate consumer.
18. As stated hereinabove, the price fixation done by the Respondents
pursuant to the DPCO, 1979 reached the Apex Court and the Apex Court in the
judgment in Cynamide's case (supra) upheld the price fixation done by the
Government. Paragraphs 2, 7, 27 and 28 of the said judgment are material and
are reproduced hereunder:
"2. Profiteering, by itself, is evil. Profiteering in the scarce resources
of the community, much needed life sustaining food-stuffs and life-
saving drugs is diabolic. It is a menace which had to be fettered and
curbed. One of the principal objectives of the Essential Commodities
Act, 1955 is precisely that. It must be remembered that Art. 39(b)
enjoins a duty on the State towards securing 'that the ownership and
control of the material resources of the community are so
distributed as best to subserve the common good'. The Essential
Commodities Act is a legislation to- wards that end. Section 3(1) of
the Essential Commodities Act enables the Central Government, if it
is of opinion 'that it is necessary or expedient so to do for
maintaining or increasing supplies of any essential commodity or for
securing their equitable distribution and availability at fair price', to
'provide for regulating or prohibiting by order, the production,
supply and distribution thereof and trade and commerce therein'. In
particular, s. 3(2)(c) enables the Central Government, to make an
order providing for controlling the price at which any essential
commodity may be bought or sold. It is in pursuance of the powers
granted to the Central Government by the Essential Commodities
Act that first the Drugs (Prices Control) Order, 1970 and later the
KPP -28- WP No. 2368 of 1996
Drugs (Prices Control) Order, 1979 were made. Armed with
authority under the Drugs (Prices Control) Order, 1979 the Central
Government issued notifications fixing the maximum prices at which
various indigenously manufactured bulk drugs may be sold by the
manufacturers. These notifications were questioned on several
grounds by the manufacturers and they have been quashed by the
Delhi High Court on the ground of failure to observe the principles
of natural justice. Since prices of 'formulations' are primarily
dependent on prices of 'bulk drugs', the notifications fixing the retail
prices of formulations were also quashed. The manufacturers had
also filed review petitions before the Government under paragraph
27 of the 1979 Order. The review petitions could not survive after
the notifications sought to be reviewed had themselves been
quashed. Nevertheless the High Court gave detailed directions
regarding the manner of disposal of the review petitions by the High
Court. The Union of India has preferred these appeals by Special
leave of this Court against the judgment of the High Court. The case
for the Union of India was presented to us ably by Shri G.
Ramaswami, the learned Additional Solicitor General and the
manufacturers were represented equally ably by Shri Anil Diwan".
"7. The third observation we wish to make is, price fixation is
more in the nature of a legislative activity than any other. It is true
that, with the proliferation of delegated legislation, there is a
tendency for the line between legislation and administration to
vanish into an illusion. Administrative, quasi-judicial decisions tend
to merge in legislative activity and, conversely, legislative activity
tends to fade into and present an appearance of an administrative
or quasi-judicial activity. Any attempt to draw a distinct line
between legislative and administrative functions, it has been said, is
'difficult in theory and impossible in practice'. Though difficult, it is
necessary that the line must sometimes be drawn as different legal
fights and consequences may ensue. The distinction between the
two has usually been expressed as 'one between the general and the
particular'. 'A legislative act is the creation and promulgation of a
general rule of conduct without reference to particular cases; an
administrative act is the making and issue of a specific direction or
the application of a general rule to a particular case in accordance
with the requirements of policy'. 'Legislation is the process of
formulating a general rule of conduct without reference to
particular cases and usually operating in future; administration is
the process of performing particular acts, of issuing particular
orders or of making decisions which apply general rules to
particular cases.' It has also been said "Rule making is normally
KPP -29- WP No. 2368 of 1996
directed toward the formulation of requirements having a general
application to all members of a broadly identifiable class" while, "an
adjudication, on the other hand, applies to specific individuals or
situations". But, this is only a bread distinction, not necessarily
always true. Administration and administrative adjudication may
also be of general application and there may be legislation of
particular application only. That is not ruled out. Again,
adjudication determines past and present facts and declares rights
and liabilities while legislation indicates the future course of action.
Adjudication is determinative of the past and the present while
legislation is indicative of the future. The object of the rule, the
reach of its application, the rights and obligations arising out of it,
its intended effect on past, present and future events, its form, the
manner of its promulgation are some factors which may help in
drawing the line between legislative and non-legislative acts. A
price fixation measure does not concern itself with the interests of
an individual manufacturer or producer. It is generally in relation to
a particular commodity or class of commodities or transactions. It is
a direction of a general character, not direct- ed against a particular
situation. It is intended to operate in the future. It is conceived in
the interests of the general consumer public. The right of the citizen
to obtain essential articles at fair prices and the duty of the State to
so provide them are transformed into the power of the State to fix
prices and the obligation of the producer to charge n6 more than
the price fixed. Viewed from whatever angle, the angle of general
application the prospectivity of its effect, the public interest served,
and the rights and obligations flowing therefrom, there can be no
question that price fixation is ordinarily a legislative activity. Price-
fixation may occasionally assume an administrative or quasi-judicial
character when it relates to acquisition or requisition of goods or
property from individuals and it becomes necessary to fix the price
separately in relation to such individuals. Such situations may arise
when the owner of property or goods is compelled to sell his
property or goods to the Government or its nominee and the price
to be paid is directed by the legislature to be determined according
to the statutory guidelines laid down by it. In such situations the
determination of price may acquire a quasi-judicial character.
Otherwise, price fixation is generally a legislative activity. We also
wish to clear a misapprehension which appears to prevail in certain
circles that price-fixation affects the manufacturer or producer
primarily and therefore fairness requires that he be given an
opportunity and that fair opportunity to the manufacturer or
producer must be read into the procedure for price-fixation. We do
not agree with the basic premise that price fixation primarily affects
KPP -30- WP No. 2368 of 1996
manufacturers and producers. Those who are most vitally affected
are the consumer public. It is for their protection that price-fixation
is resorted to and any increase in price affects them as seriously as
any decrease does a manufacturer, if not more."
27. We are unable to agree with the submissions of the learned
counsel for the respondents either with regard to the applicability of
the principles of natural justice or with regard to the nature and the
scope of the enquiry and review contemplated by paragraphs 3 and
27 while making our preliminary observations, we pointed out that
price fixation is essentially a legislative activity though in rare
circumstances, as in the case of a compulsory sale to the
Government or its nominee, it may assume the character 'of an
administrative or quasi judicial activity. Nothing in the scheme of
the Drugs (Prices Control) Order induces us to hold that price
fixation under the Drugs (Prices Control) Order is not a legislative
activity, but a quasi-judicial activity which would attract the
observance of the principles of natural justice. Nor is there anything
in the scheme or the provisions of the Drugs (Prices Control) Order
which otherwise contemplates the observance of any principle of
natural justice or kindred rule, the non-observance of which would
give rise to a cause of action to a suitor. What the order does
contemplate however is 'such enquiry' by the Government 'as it
thinks fit'. A provision for 'such enquiry' as it thinks fit' by a
subordinate legislating body, we have explained earlier, is generally
an enabling provision to facilitate the subordinate legislating body
to obtain relevant information from any source and it is not
intended to vest any right in any body other than the subordinate
legislating body. In the present case, the enquiry contemplated by
paragraph 3 of Drugs (Prices Control) Order is to be made for the
purposes of fixing the maximum price at which a bulk drug may be
sold, with a view to regulating its equitable distribution and making
it available at a fair price. The primary object of the enquiry is to
secure the bulk drug at a fair price for the benefit of the ultimate
consumer an object designed to fulfil the mandate of Art. 39(b) of
the Constitution. It is primarily from the consumer public's point of
view that the Government is expected to make its enquiry. The need
of the consumer public is to be ascertained and making the drug
available to them at a fair price is what it is all about. The enquiry is
to be made from that angle and directed towards that end. So,
information may be gathered from whatever source considered
desirable by the Government. The enquiry, obviously is not to be
KPP -31- WP No. 2368 of 1996
confined to obtaining information from the manufacturers only and
indeed must go beyond. However, the interests of the
manufacturers are not to be ignored. In fixing the price of a bulk
drug, the Government is expressly required by the Order to take
into account the average cost of production of such bulk drug
manufactured by 'an efficient manufacturer' and allow a reasonable
return on 'net worth'. For this purpose too, the Government may
gather information from any source including the manufacturers.
Here again the enquiry by the Government need not be restricted to
'an efficient manufacturer' or some manufacturers; nor need it be
extended to all manufacturers. What is necessary is that the average
cost of production by 'an efficient manufacturer' must be
ascertained and a reasonable return allowed on 'net worth'. Such
enquiry as it thinks fit is an enquiry in which information is sought
from whatever source considered necessary by the enquiring body
and is different from an enquiry in which an opportunity is required
to be given to persons likely to be affected. The former is an enquiry
leading to a legislative activity while the latter is an enquiry which
ends in an administrative or quasi-judicial decision. The enquiry
contemplated by para- graph 3 of the Drug (Prices Control) Order is
an enquiry of the former character. The legislative activity being a
subordinate or delegated legislative activity, it must necessarily
comply with the statutory conditions if any, no more and no less,
and no implications of natural justice can be read into it unless it is
a statutory condition. Notwithstanding that the price fixation is a
legislative activity, the subordinate legislation had taken care here
to provide for a review. The review provided by paragraph 27 of the
order is akin to a post decisional hearing which is sometimes
afforded after the making of some administrative orders, but not
truly so.
28. It is a curious amalgam of a hearing which occasionally
precedes a subordinate legislative activity such as the fixing of
municipal rates etc. that we mentioned earlier and a post-decision
hearing after the making of an administrative or quasi-judicial
order. It is a hearing which follows a subordinate legislative activity
intended to provide an opportunity to affected persons such as the
manufacturers, the industry and the consumer public to bring to the
notice of the subordinate legislating body the difficulties or
problems experienced or likely to be experienced by them
consequent on the price fixation, whereupon the Government may
make appropriate orders. Any decision taken by the Government
cannot be confined to the individual manufacturer seeking review
but must necessarily affect all manufacturers of the bulk drug as
KPP -32- WP No. 2368 of 1996
well as the consumer public. Since the maximum price of a bulk
drug is required by paragraph 3 to be notified any fresh decision
taken in the proceeding for review by way of modification of the
maximum price has to be made by a fresh notification fixing the
new maximum price of the bulk drug. In other words, the review if
it is fruitful must result in fresh subordinate legislative activity. The
true nature of the review provided by paragraph 27 in so far as it
relates to the fixation of maximum price of bulk drugs under
paragraph 3 leader price and prices of formulations under
paragraphs 12 and 13 is hard to define. It is difficult to give it a
label and to fit it into a pigeon-hole, legislative, administrative or
quasi-judicial. Nor is it desirable to seek analogies and look to
distant cousins for guidance. From the scheme of the Control Order
and the context and content of paragraph 27, the Review in so far
as it concerns the orders under paragraph 3, 12 and 13 appears to
be in the nature of a legislative review of legislation, or more
precisely a review of subordinate legislation by a subordinate
legislating body at the instance of an aggrieved person. Once we
have ascertained the nature and character of the review, the further
question regarding the scope and extent of the review is not very
difficult to answer. The reviewing authority has the fullest freedom
and discretion to prescribe its own procedure and consider the
matter brought before it so long as it does not travel beyond the
parameters prescribed by paragraph 3 in the case of a review
against an order under paragraph 3 and the respective other
paragraphs in the case of other orders. But whatever procedure is
adopted, it must be a procedure tuned to the situation.
Manufacturers of any bulk drug are either one or a few in number
and generally they may be presumed to be well informed persons,
well able to take care of themselves, who have the assistance of
Accountants, Advocates and experts to advise and espouse their
cause. In the context of the Drug industry with which we are
concerned and in regard to which the Control Order is made we
must proceed on the basis that the manufacturers of bulk drugs are
generally persons who know all that is to be known about the price
fixed by the Government. From the legislative nature of the activity
of the Government, it is clear that the Government is under no
obligation to make any disclosure of any information received and
considered by it in making the order but in order to render effective
the right to seek a review given to an aggrieved person we think
that the Government, if so requested by the aggrieved manufacturer
is under an obligation to disclose any relevant information which
may reasonably be disclosed pertaining to 'the average cost of
production of the bulk drug manufactured by an efficient
KPP -33- WP No. 2368 of 1996
manufacturer' and 'the reasonable return on net worth'. For
example, the manufacturer may require the Government to give
information regarding the particulars detailed in Form No. 1 of the
Fourth Schedule which have been taken into account and those
which have been excluded. The manufacturer may also require to
be informed the elements which were taken into account and those
which were excluded in assessing the 'free reserves' entering into
the calculation of 'net worth'. These particulars which he may seek
from the Government are mentioned by us only by way of
illustration. He may seek any other relevant information which the
Government shall not unreasonably deny. That we think is the
nature and scope of the review contemplated by Paragraph 27 in
relation to orders made under Paragraphs 3, 12 and 13".
19.
The Apex Court, therefore, has in terms held that profiteering by itself
is evil and profiteering of scarce resources of the community and life saving drugs
is diabolical is a menace which had to be fettered and curbed. It is further held
by the Apex Court that the orders made under the Essential Commodities Act,
namely DPCOs have to be understood and interpreted keeping in mind the
Directive Principles under Article 39 (b) of the Constitution. The Apex Court
further held that the manufacturer of bulk drugs or indeed formulations are
presumed to be well informed persons, well able to take care of themselves,who
have the assistance of accountants, advocates and experts to advice and espouse
their cause. That the Court should take judicial notice of the fact that the
manufacturers of drugs are generally who know all that is that is to be known in
the price fixed by the Government.
KPP -34- WP No. 2368 of 1996
20. As can be seen from a reading of paragraph 7 of the DPCO, 1979,
paragraph (2) thereof obligates a manufacturer of formulation who utilises in his
formulation any bulk drug, either from his own production or procured by him
from any other source, the price of such bulk drug being lower than the price
allowed to him in the retail price of his formulation, to deposit in the DPEA
account the excess amount. This was the first step in the process of disgorgement
of the unjust enrichment or unjust profit. The second step was to direct the sale of
the formulation at a revised price to be fixed by the Government. The facts in the
instant case disclose that the manufacturers did not adhere to the DPCO, 1979 by
depositing the amounts as envisaged by paragraph 7 (2) or by filing their returns.
This was probably on the ground that the issue of price fixation was pending
before the Apex Court in Cynamide's case. As stated by the respondents in their
two affidavits, it is only after the decision in Cynamide's case that the
Respondents could proceed against the manufacturers by issuing them the
notices.
21. The issue which arises for consideration is whether the amounts have
accrued during the currency of DPCO, 1979, as contended by the learned
Additional Solicitor General, or whether unless there is a determination under 7
(2) (a) or (b) of DPCO, 1979, they cannot be said to have accrued, as contended
by the learned Senior Counsel for the petitioners.
KPP -35- WP No. 2368 of 1996
22. In the said context, it is required to be noted that whether the amount
has accrued is to be addressed on the basis of the facts and circumstances of each
case. Though it is no doubt true, as contended by the learned Senior Counsel that
in the absence of determination and adjudication by the Government, it cannot be
said that any amount has accrued to the Government. The said submission at the
first blush appears to be attractive, however, holds no water, considering the
provisions of paragraph 7 (2) the DPCO, 1979. Under the said DPCO, 1979, it is
clear that the manufacturers of formulations were required to deposit the
differential amount which had accrued in the DPEA. It was within the knowledge
of a manufacturer as to at what price he was allowed to purchase the bulk drug
and as to at what price he had actually purchased the said bulk drug and if
purchase price was lower, the difference was required to be deposited by the
manufacturer into the DPEA. In our view, therefore, the said amount requires no
adjudication at all, since the manufacturer of the formulation knew the price at
which he had procured the bulk drug and also knew the price of the bulk drug
allowed in the retail price fixed by orders/notifications already issued. The
manufacturer thus knew the unintended benefit of profit which had accrued to
him and which he was not supposed to retain but deposit in the DPEA under the
DPCO, 1979. Considering the provisions of the said paragraph 7 (2) of the DPCO,
1979, we are not in a position to accept the submission of the learned Senior
Counsel for the Petitioners, that the amount accrued should mean that the
amount which the manufacturer is liable to pay on the basis of the adjudication.
KPP -36- WP No. 2368 of 1996
In our view, no adjudication process is involved so far as accrual of the amount
under DPCO, 1979 is concerned as the said liability had accrued as soon as the
actual procurement price fell below the allowed price of the bulk drug which was
utilised in the formulation. We are, therefore, of the view that the amount in
question which was to be deposited in the DPEA had accrued during the currency
of the DPCO, 1979.
23. Now, coming to the aspect as to whether in the absence of
determination and quantification whether the amount can be said to have been
accrued, we find that there is a clear conceptual distinction between accrual of
an obligation or incurring of a liability as opposed to its determination and
quantification. We find merit in the submission of the learned Additional
Solicitor General that for the accrual of an obligation or incurral of a liability, it is
not necessary to quantify or determine the liability. In so far as the
"determination" contemplated under paragraph 7 (2) of the DPCO, 1979 is
concerned, the same can only be said to be for finding the extent of the liability
that had already arisen, and is not a process for deciding whether or not the
liability has arisen. A useful reference could be made to the judgments of the
Apex Court in (i) Sedco Forex International Drilling Inc. (supra), (ii)
Amadalavalasa Co-operative Agricultural and Industrial Society Ltd. (supra) and
(iii) CIT v. Goverdhan Ltd. (supra).
KPP -37- WP No. 2368 of 1996
In the case of Sedco Forex, the liability to pay customs duty had accrued on the
import of a rig in the year 1988 though the quantification of the duty liability
issue was pending before the Additional Commissioner of Customs. the Apex
Court therefore held as follows:
"13. In the present case, the applicant has paid customs duty
amounting to Rs. 26,67,94,320/- as far back as February, 2001.
It seeks reimbursement o the duty paid in terms of the contract.
The applicant has invoked the arbitration clause as far back as
31-3-2003. The accrual of liability, as a concept, is different
from quantification of the liability. In the present case, the
liability to pay customs duty has accrued. In the circumstances,
it cannot be said that the application under section 11 (4) of the
Arbitration & Conciliation Act, 1996 is pre-mature."
In the case of Amadalavalasa, the Apex Court held thus:
The liability to pay premia in case of under-valuation was not
dependent upon the subsequent determination of the full
insurable value of the factory or goods insured. If the factory or
goods was under-valued,when the insurance policy was taken,
the liability to pay premia on the basis of the full insurable value
arose at the time when the policy was taken. That liability was
not dependent upon the ascertainment of the full insurable value
by the authorized officer in accordance with the Third
Schedule.
21. In Ekambarappa v. Excess Profits Tax officer this Court
held that the liability for excess profits tax arose at the close of
the accounting year and was not dependent upon its
ascertainment by an order of assessment. In the same way, the
liability to pay the premia on the basis of the full insurable value
of the factory or goods insured was incurred Acts and the
schemes were in operation. 'The liability to pay premia on the
basis of the full insurable value of the factory or goods is
one thing; the quantification of the amount is another.
22. But it was argued that if a policy was taken not for the
full insurable value, the authorized officer should have
ascertained the correct insurable value within the quarter and a
KPP -38- WP No. 2368 of 1996
supplementary policy should have been issued on the basis of
the full insurable value, also within the quarter, so that the
liability to pay premia on the basis of the full insurable value
might arise. In other words, the argument was that the liability
to pay premia on the basis of the full insurable value in case of
under insurance was conditioned by the capacity on the part of
the insurer to issue a supplementary policy within the quarter
undertaking to indemnify the insured on the basis of the correct
value against emergency risks, and, as the insurer ceased to have
the capacity after the expiry of the quarter, and a fortiori after the
expiry of the Acts, to issue a supplementary policy undertaking
the liability to indemnify against loss arising out of emergency
risk, on the basis of thefull insured value,the obligation to pay
premia on the full insurance value ceased, as, after the expiry of
the Acts, there could no longer be any emergency risk.
23. We do not think that the argument is correct. As we said,
the obligation to insure for full insurable value of the factory or
goods was an obligation which was not dependent upon the
corresponding liability of the insurer to indemnify. If the owner
of factory or goods failed to take insurance policy at the time he
ought to have taken it and pay the premia, the liability of the
insured to pay the premia could be enforced under clause 13 or
14 respectively of the Schemes under the 'Goods Act' or the
'Factories Act'. In such a case there would be no obligation on
the part of the President to indemnify the insured in case of loss
or damage on account of emergency risk the insured did not take
out the policy of insurance. The obligation to issue the policy or
supplementary policy, as the case may be, would arise only
after payment or recovery of the evaded premia, and even then,
the liability of the insurer under the policy or supplementary
policy would be from the date of payment or recovery of the
evaded premia. The fact, therefore, that no supplementary
policy was issued before the expiry of the Acts is no answer for
not fulfilling the obligation of the insured to pay the premia in
accordance with the correct insurable value of the factory or
goods as determined under the Third Schedule to the
Schemes."
In the case of Goverdhan Ltd., the Apex Court held thus:
"It is, however, well established that the income may accrue to
an assessee without actual receipt of the same and if the assessee
KPP -39- WP No. 2368 of 1996
acquires a right to receive the income, the income can be said to
have accrued to him though it may be received later on on its
being ascertained. The legal position is that a liability depending
upon a contingency is not a debt in praesenti or in future till the
contingency happens. But if it is a debt the fact that the amount
has to be ascertained does not make it any the less a debt if the
liability is certain and what remains is only a quantification of the
amount; debitum in praesenti, solvendum in futuro."
The contention of the learned Senior Counsel for the Petitioners, therefore, that
unless there is a determination, the amount cannot be said to have accrued,
cannot be accepted.
24.
The question, therefore, remains whether the recovery in respect of
the amount accrued under the DPCO, 1979 could be effected by having recourse
to the provisions of DPCO, 1987 and DPCO, 1995.
25. In so far as the said aspect is concerned, the saving clauses of DPCO
1987 and 1995 would have to be considered. In the said context, it would be
relevant to note that the said DPCO, 1987 was preceded by the drug policy, 1986.
The said drug policy, as contended by the learned Additional Solicitor General,
inter alia, provides that a provision would have to be made in the new Drug Price
Control Order to ensure that amounts which have already accrued to the DPEA
and those which are likely to accrue as a result of action in the past are protected
and used for the purpose stipulated in the existing DPEA. This was in view of the
fact that the Central Government was firmly of the view that the liability which
has incurred prior to the repeal of DPCO, 1979 of depositing the monies into the
KPP -40- WP No. 2368 of 1996
DPEA would necessarily have to be honoured. As can be seen from the DPCO,
1987, which contains a saving clause in paragraph 14, the express language of
paragraph 14 saves the liabilities which were incurred under the repealed DPCO,
1979. The notice contemplated in paragraph 14 would require the manufacturers,
etc. to deposit the amounts which have accrued on account of the actions under
the DPCO, 1979 on or before the commencement of the said order. The notice
would require deposit not of amounts determined under the DPCO, 1979 but
amounts which have accrued under the DPCO, 1979. The said aspect can be seen
even clearer from the savings clause of the DPCO, 1995 which is paragraph 12.
The said paragraph 12 makes it clear that there was a specific legislative mandate
in the said DPCO that the quantification could be done even after the repeal of
DPCO, 1979, under the DPCO, 1987 and/or DPCO, 1995 meaning thereby that
there would be no question of raising the issue of latches or delay. In the said
context it will be pertinent to note the language used in paragraph 12 of DPCO,
1995, the language used is not amounts which have been determined and not
even the amounts which had accrued under the DPCO, 1979 but it simply uses
the expression "the amount which has accrued under the provisions of the DPCO,
1979 " which means the amount so accrued irrespective of whether it has been
determined or not. As rightly contended by the learned Additional Solicitor
General, any other interpretation in respect of a socio-economic legislation would
make mockery of the whole purpose, scheme, drift and tenor of the said
legislation. In our view, therefore, by the saving clauses of DPCO, 1987 and
KPP -41- WP No. 2368 of 1996
DPCO, 1995, the power for recovering the amount accrued under the DPCO
1979, is saved.
26. Now, coming to the contention of the learned Senior Counsel Mr.
Seervai that the savings clause in DPCO, 1987 and DPCO, 1995 is limited to the
extent of only the amount that is so determined under the DPCO, 1979 by an
adjudicatory process. It is well settled that the repealing statute provides the clue
as to the extent of the saving of the repealed statute. In the instant case, as held
hereinabove, as per para 14 of DPCO, 1987 and para 12 of DPCO, 1995, the
amounts accrued under the DPCO, could be recovered by having recourse to the
said provisions. We, therefore, do not accept the submission of the learned Senior
Counsel that the saving clauses in question are limited only to the amounts
determined. In our view, if such an interpretation of paragraphs 14 and 12 of
DPCOs 1987 and 1995, as stated above, is to be given, it would negate the entire
policy relating to drug price control as formulated by the Government. In so far
as the submission of the learned Senior Counsel Mr. Seervai that under the DPCO,
1979 there was an option available to the Government of either proceeding under
para 7 (2) (a) or para 7 (2) (b) and, therefore, it cannot be said that liability has
been incurred as the Government has not exercised either of the options during
the currency of the DPCO, 1979. No doubt, there were two options available with
the Government, however, in our view, para 7 (2) (a) and 7 (2) (b) of DPCO,
1979 deal with the consequences which may arise on account of the incurring of
KPP -42- WP No. 2368 of 1996
the liability and its determination. In our view, it does not affect the incurral of
the liability but merely states that once the liability is so incurred, consequences
of that would depend on the discretion of the Government keeping in mind the
public interest either to follow the first part of para 7 (2) which is to the effect
that monies be directed to be deposited in the DPEA or its second part which is
fixing the price. We, therefore, do not find any merit in the said submission of
the learned Senior Counsel for the Petitioners.
27.
One thing also cannot be lost sight of by us is that under paragraph
25 of DPCO, 1979, the manufacturers were mandatorily required to submit
information for that year in Form No. 6 to the Government so that the
determination of the quantum under para 7 (2) can take place. The
manufacturers have admittedly not done so, as in the instant petition, no details
have been given by the petitioners as to any such compliance. The manufacturers,
therefore, cannot be allowed to take benefit of their own wrong. If the contention
of the Petitioners that the amounts will not accrue until determination is made
under para 7 (2) is accepted, then in all cases falling in the period immediately
preceding the repeal of the Control Order of 1979 i.e. from 1st April, 1986 to 25th
August, 1987, would result in waiver of the liability of all the manufacturers that
had already accrued and was only to be determined by finding out the precise
amounts payable by ascertaining the relevant data for the period in question, it is
therefore not possible to give such an interpretation.
KPP -43- WP No. 2368 of 1996
28. As regards the contention of the learned Senior Counsel for the
Petitioners, that Section 6 of the General Clauses Act would not be applicable in
view of the fact that DPCOs are neither a Central legislation nor a regulation
framed thereunder. In support of which contention, reliance was placed by the
learned counsel on the decision of the supreme Court in the matter of Kolhapur
Canesugar Works Ltd. (supra). In our view, there is merit in the said submission.
There can be no dispute of the fact that DPCOs are neither a Central Act nor a
Regulation and, therefore, the application of Section 6 is debatable. However,
even if it is assumed that Section 6 of the General Clauses Act is not applicable, in
our view considering the specific savings clause contained in DPCO, 1987 which
is paragraph 14 and DPCO, 1995 which is paragraph 12, and in the light of what
we have held hereinabove, the non-application of Section 6 of the General
Clauses Act, in our view, would be of no consequence as, in our view, the
amounts which have accrued under the DPCO, 1979 are permitted to be
recovered under the DPCO, 1987 and DPCO, 1995 in view of the specific saving
clauses which we find in the said DPCOs.
29. The submission of the learned Additional Solicitor General that the
issue involved in the above petition is to a large extent covered by the Division
Bench judgment of the Gujarat High Court in the matter of Cadila Laboratories
(supra) has considerable merit. Though the fact situation in the said case was
KPP -44- WP No. 2368 of 1996
different than the fact situation in the present case inasmuch as the notices in the
said case were issued during the currency of DPCO, 1979 and there was
quantification also done during its currency. However, the issues relating to
accrual of liability in terms of DPCO, 1979, accrual of liability even in the absence
of quantification, the scheme encompassed in paragraph 7, the amplitude of the
savings clause in DPCO, 1987 and DPCO, 1995, the obligation of the
manufacturer to submit information under paragraph 25 of the DPCO, 1979,
and the purpose of directing the manufacturer to deposit the amount in the DPEA
so that he does not draw profit beyond the permissible limit have been succinctly
dealt with by the Division Bench of the Gujarat High Court in the said judgment
in Cadila's case. In the context of the issues that arise in the above petition,
paragraphs 10, 11, 12, 14, 15, 16, 18 and 19 of the said judgment are material
and are reproduced hereunder.
"10. Thus, the data as regards the procurement price or cost of the
bulk drug used in the formulation, the retail price of the
formulation, the quantity sold (turnover) are matters that would
form the basis of liability to credit the Account with the difference
in the price of bulk drug allowed in the price of the formulation
and the actual price of such bulk drug. Only the amount was
required to be ascertained by reference to the material that was
available. The price of bulk drug allowed in the formulation was
reflected in the formula adopted for fixing the retail price of the
formulation and it would be only a matter of clerical calculation
with reference to the quantity of the bulk drug utilized in the
formulation. The procurement price of such bulk drug was also a
matter of record required to be maintained by the manufacturer
of the formulation. The course of determination of the amount
required to be credited was only the process of ascertainment of
the liability that had already accrued at the end of the accounting
KPP -45- WP No. 2368 of 1996
year on the basis of the retail price which included a leader price
as defined under Paragraph 2 (r) of the Control Order of 1979
already fixed by the Government, the bulk drug already procured
and utilised in the formulation and the data/ information required
to be maintained and supplied by the manufacturer. If the
manufacturer does not furnish the requisite data on the basis of
which it could be ascertained whether there existed a difference
that was required to be credited by him in the Account, it cannot
be said that the liability by virtue of the provisions of the Control
Order of 1979 did not accrue till the quantification of liability was
determined. Determination is only for the purpose of ascertaining
the excess amount and is a process to find out what amount had
accrued by way of such liability that he can be required to deposit
in the Account. It may be recalled that the Supreme Court, in
CYNAMIDE's case (supra) in context of the Control Order of 1979
and the challenge against the notifications fixing prices observed
in paragraph 31 of its judgment that the manufacturer of bulk
drugs who claimed to be affected by the Control Order belonged
to class of persons who were well and fully informed of every
intricate detail and particular which was required to be taken into
account in determining the price. In most cases, they were the
sole manufacturers of the bulk drug and even if they were not the
sole manufacturers, they belonged to the very select few who
manufactured the bulk drug. It was observed in paragraph 28 of
the judgment that manufacturers of bulk drug were either one or
a few in number and generally they may be able to take care of
themselves, and had the assistance of accountants. It was
observed that in the context of Drug industry and in regard to the
said Control Order one must proceed on the basis that the
manufacturers of bulk drugs are generally persons who know all
that is to be known about the price fixed by the Government. It
was held that from the legislative nature of the activity of the
Government, it was clear that the Government was under no
obligation to make any disclosure of any information received and
considered by it in making the order.
11. The retail price of formulations calculated as per the formula
prescribed by Paragraph 10 includes 'MU', i.e. Mark-Up referred in
Paragraph 11 of the Control Order of 1979. This Mark-Up
includes the distribution cost, outward freight, promotional
expenses, manufacturers' margin and the trade commission, which
was not to exceed 40% in the case of formulations in Category 1
of the Third Schedule and 55% in the case of formulation of
Category II and 100% in the case of formulations of Category III.
It will be noted from the scrutiny of Paragraphs 10 and 11 of the
KPP -46- WP No. 2368 of 1996
Control Order of 1979 that the components of the retail price
fixed are so regulated that there would be no scope for a higher
profit margin to the manufacturer than what would be permissible
within the range of the retail price fixed. The particulars required
to be shown in Form 6 read with Paragraph 25 of the Control
Order of 1979 by the manufacturer of the formulations would
reflect his profit and the expenses incurred on the raw materials
used which would include the bulk drugs. As noticed from
Paragraph 10 of the Control Order of 1979, the material cost,
which includes cost of the bulk drug used, is to be calculated as
per the norms specified by the Government. On the basis of the
information supplied by the manufacturer under Paragraph 25 (2)
read with Form 6 within six months of the close of the accounting
year, the Government would know whether there was any indirect
mode of getting a larger margin of profit than permissible under
the Price Control Policy enshrined in the Control Order of 1979
and if it is noticed, it can be determined and the excess recovered
by the Government. The cost of drug used in the formulation
which is specified by the Government as per the norms notified as
envisaged by Paragraph 10 would be the price allowed to the
manufacturer in the price of his formulation and the cost at which
he has procured such raw material as should reflect in the
information given by him in Form 6 (see Item 6, Rule B-4) would
be basis for working out the excess of the allowed price of the
bulk drug used in the formulation over its actual procurement
price to the manufacturer. The process of determination of the
amount under Paragraph 7 (2) is thus only a matter of working
out the amount of excess on the basis of the data that has been
crystallized by the price fixation done and the activities of the
manufacturer already recorded in his books under Paragraph 25
read with Form 6 of the Control Order of 1979. No manufacturer
who withholds information vital to working out the difference
under Paragraph 7 (2) (a) which he was liable to deposit, can
take advantage of his own wrong on the basis of the delay caused
by him by not furnishing the information in Form 6. The word
"determine" in Paragraph 7 (2) (a) would in the context mean to
find out precisely the extent of the amount that the manufacturer
is liable to deposit in the Account. The liability to pay the amount
that had accrued into the Account is thus found out by the process
of determination, not that it had not been incurred until its extent
was precisely found out or worked out.
12. Paragraph 17 of the Control Order of 1979 requires the
Government to maintain the DPE Account and imposes a duty on
the manufacturer of formulation to credit in it the amount
KPP -47- WP No. 2368 of 1996
determined under Paragraph 7 (2) and the manufacturer of the
bulk drug to credit in it the excess of the common selling price or
as the case may be the pooled price over his retention price. The
common selling price, pooled price and retention price are all
fixed under the Orders issued by the Central Government as can
be seen from the provisions of Paragraphs 4 and 7 (1) of the
Control Order of 1979. Thus, the duty of the manufacturer of the
bulk drug to credit the excess amount of the common selling price
or pooled price over the retention arises by virtue of the orders
issued under Paragraphs 4 and 7 as provided under Paragraph 17
(1) (a) (ii) of the Control Order of 1979, just as the duty of the
manufacturer of formulations arises to credit the amount as may
be ascertained under Paragraph 7 (2) (a) of the Control Order of
1979. The process of determination of the excess amount of the
price allowed of bulk drug in the price of formulation over its
actual procurement price is necessary, because, while the price
allowed can be ascertained from the orders/notifications fixing
retail price of the formulations, the prices of bulk drug and the
norms laid down for working out the material cost factor in the
formula, the actual procurement price of the bulk drug used in
such formulation would be to the personal knowledge of the
manufacturer who has to keep account and furnish information to
the Central Government in that regard. This process of
ascertaining the correctness of the procurement price of the bulk
drug so used in the formulation is not involved in case of the
manufacturer of bulk drugs, because, that can be worked out on
the basis of the orders fixing common selling price, pooled price
and the retention price which all are issued by the Central
Government under Paragraphs 4 and 7 (1) of the Control Order of
1979. Therefore, the manufacturer of bulk drug is required to
credit the excess of common selling price/ pooled price over his
retention price without any need for the Government to ascertain
the amount of his liability which is evident on the basis of the
orders already issued under Paragraphs 4 and 7 (1) of the Control
Order of 1979, while for the manufacturer of formulations the
Central Government is required to find out precisely the excess
amount that such manufacturer of formulation is bound to deposit
in the Account by working out the said difference in context of the
retail price fixed and the component of material cost included
therein on the basis of the notified norms envisaged in the
formula prescribed in Paragraph 10 of the Control Order of 1979.
It cannot be said that while the liability to credit the excess
amount contemplated in Paragraph 17 (1) (ii) of the Control
Order of 1979 arose in case of manufacturer of bulk drug before it
KPP -48- WP No. 2368 of 1996
was repealed, similar liability of the manufacturers of
formulations did not arise simply because the precise excess
amount was to be worked out on the basis of the liability that had
already accrued in view of the price of the bulk drug allowed in
the retail price fixed by orders/ notifications already issued being
higher than the actual procurement price of the bulk drug utilised
in the formulation before the repeal of the Control Order of 1979.
In fact, in the process of working out the precise excess amount
under Paragraph 7 (2) (a), the Central Government does not pass
any order of the nature of the orders/ notifications which are
made reviewable under Paragraph 27, which obviously referred to
the orders mentioned in Paragraph 7 (1) which pertained to fixing
of retention price or pooled price. Paragraph 7 (2) as can be
noticed does not use the expression "by order" or "by notification",
that occurs in the Paragraphs which refer to notification or orders
made reviewable under Paragraph 27 of the Control Order of
1979.
14. The amount of excess which is ascertained by the Government
under Paragraph 7 (2) has to be credited by the manufacturer in
the DPE Account under Paragraph 17 (1) (a) (i). The liability for
the amount had already accrued before it was found out or
established precisely. Therefore, the fact that the process of
determining the amount of liability that had already accrued
under the Control Order of 1979 took time will not extinguish the
liability of such manufacturer and the recovery which was delayed
could be made under the specific provisions made in the
subsequent Orders which saved such recovery notwithstanding
the repeal of the Control Order of 1979.
15. The Drugs (Prices Control) Order 1987 came into force from
26.8.1987 when it was published in the Gazette of India.
Paragraph 14 kept intact the power of the Central Government to
recover dues accrued under the Control Order of 1979. As noted
above, every manufacturer was duty bound under Paragraph 25
of the Control Order of 1979 to submit information for the
accounting year within six months of the close of the year. This
would mean that the process of ascertainment of liability that may
be accrued during the currency of the Control Order of 1979
would ordinarily be done by the Central government after such
information is furnished. In all cases falling in the period
immediately preceding the repeal of the Control Order of 1979,
determination of the excess amount under Paragraph 7 (2) could
never have been done until the information was furnished by the
manufacturer as stipulated in Paragraph 25 (2). Therefore, if
what the petitioners contend is accepted, it would result in waiver
KPP -49- WP No. 2368 of 1996
of the liability of all the manufacturers that had already accrued
and was only to be determined by finding out the precise amounts
payable by ascertaining the relevant data for the period in
question. Since six months from the date of the closure of the
accounting year was the time permitted to such manufacturer, if
the accounting year ended on 31st March 1987, he could have
waited upto 30.9.1987 to submit the information in Form 6 to the
Government about his turnover, use of raw material, profit
margin etc. Therefore, in all such cases, the dues that had accrued
under the Control Order of 1979 cannot be recovered under
Paragraph 14 of the Control Order of 1987 despite the power to
recover them having been specifically saved thereunder. This
patent absurdity cannot be attributed to the provisions of
Paragraph 14 of the Control Order of 1987 or corresponding
Paragraph 12 of the Control Order of 1995. The scheme of saving
the power to recover the dues under the Control Order of 1979
into the DPE Account reflected in Paragraph 14 of the Control
Order of 1987 is to be understood in context of the Account which
continued to operate in respect of the amounts credited therein
and those which were meant to be credited in it under Paragraph
17 of the Control Order of 1979, which provided that the
Government shall maintain the DPE Account to which shall be
credited by the manufacturer the amount determined under
paragraph 7 (2) (a) of the Control Order. Therefore, the power to
determine the dues that had already accrued under the Control
Order of 1979 is necessarily implied in the power to recover the
dues "accrued on account of the actions under the Drug (Prices
Control) Order, 1979" under Paragraph 14 of the Control Order of
1987 or the expression "accrued under the provisions of the Drug
(Prices Control) Order, 1979" occurring in the corresponding
Paragraph 12 of the Control Order of 1995. If the subordinate
legislation intended that only the sums already determined under
the Control Order of 1979 could be recovered and not the
amounts that may have accrued under the Order but were yet to
be ascertained, nothing could have been more simple than merely
stating that the Government may require the manufacturer to
deposit the amount determined under Paragraph 7 (2) (a) prior to
coming into force of the Control Order of 1987. This nullifying
meaning cannot be attributed to Paragraph 14 of the Control
Order of 1987 which operated notwithstanding the repeal of the
Control Order of 1979 by Paragraph 30 of the Control Order of
1987 as is clear from its non obstante clause.
16. Under the saving clause of Paragraph 30 (2), anything done,
any action taken including any notification or order made,
KPP -50- WP No. 2368 of 1996
direction given, notice issued or exemption granted, shall be
deemed to have been done etc. within corresponding provisions of
the Control Order of 1987. Therefore, the retail price of the
formulations specified in Category I of the Third Schedule by
notification issued under the Control Order of 1979 as per
Paragraphs 10 and 11 thereof, is deemed to have been fixed
under the corresponding provisions of the Control Order of 1987.
By virtue of the actions taken including issuance of notifications
and orders, the liability to credit the amount which had accrued in
the DPE Account arose when the manufacturer of formulation
utilised in it bulk drug procured by him at a price lower than the
price of bulk drug allowed in the retail price of his formulation.
The word "may" in the phrase 'the Government may require such
manufacturer' in Paragraph 7 (2) of the Control Order of 1979
was only meant to give an option to the Government either to
require such manufacturer to deposit the amount that may be
ascertained or to sell the formulation at the price that may be
fixed by the Government for the formulation of such
manufacturer. It did not give any discretion to the Government to
waive the liability of the amount that had accrued in the Account
as a result of the higher price of bulk drug allowed in the price of
formulation than the price of procurement of such bulk drug.
18. If under the repealed Order a liability has already arisen on
the basis of the orders/notifications made and things done but in
respect of which some investigation or proceeding is necessary,
the liability is then unaffected and preserved even if a process of
quantification is necessary. The process of determination
contemplated under Paragraph 7 (2) is for finding out the extent
of liability that had arisen and is not a process of deciding
whether or not some liability should be imposed. It is one thing to
invoke the repealed provisions for the adjudication of the liability
which has already been incurred prior to repeal of that law and it
is quite another matter to say that a liability which did not arise
under the repealed law should be imposed after the repeal of the
provisions. In other words, no new liability can be created under
the provisions of law after their repeal but the liability that had
already been incurred would not vanish on such repeal so as to
prevent such quantification and recovery of dues that already had
accrued, though not received into the DPE Account as envisaged
in Paragraphs 14 and 12 of the subsequent Control Orders,
notwithstanding the repeal of the Control Order of 1979.
19. The question whether the amount became payable in the
KPP -51- WP No. 2368 of 1996
Account by the manufacturer of formulations or not depended
upon all the happenings that took place during the currency of the
Control Order of 1979. From the fixation of retail price of
formulations, done under that order or deemed to be done
thereunder if done earlier and saved by it, the price of bulk drug
allowed therein could be easily ascertained, because, it had gone
in as a component of the price fixation formula that had already
taken place, and only the figure of the allowed cost of bulk drug
used could be worked out on the basis of the existing data. The
utilization of the bulk drug of the price lower than the price
allowed in the formulation had also taken place during the
currency of the Control Order of 1979 and such price of the bulk
drug would be a matter to the personal knowledge of the
manufacturer of formulation who had procured it from other
sources. In fact, if the manufacturer maintained the records as
strictly required and furnished the necessary information of the
purchases and utilisation of the bulk drug in the formulations, it
was just a matter of opening the books and checking up the
figures for ascertaining the quantity of bulk drug used and its
price. If, however, the manufacturer failed in his duty to provide
the requisite information, the provisions creating liability cannot
abort nor will his liability be postponed till he makes a disclosure.
The liability had come to stay during the currency of the Control
Order and it was only to be unearthed or discovered by finding
out its extent. The Government would be justified in resorting to
other sources to ascertain the procurement price of the bulk drug
and extent of its utilisation and from its record of price fixation of
bulk drugs which is done by issuing notifications and orders it
could work out the extent of liability that may have arisen under
Paragraph 7 (2) of the Control Order of 1979. The recovery of the
dues that have thus accrued into the DPE Account by virtue of the
liability arisen due to things done and actions taken while the
Control Order of 1979 was in force is specifically saved in the
subsequent Control Orders of 1987 and 1995 in Paragraphs 14
and 12 thereof respectively as a measure of enforcing such
liability by effecting the recovery of the amounts which became
payable under the repealed Order but only remained to be
quantified".
In so far as the findings recorded in the said judgment are concerned, as regards
the interpretation of the word "accrued", the accrual of liability in terms of DPCO,
KPP -52- WP No. 2368 of 1996
1979, the finding that the accrual would not depend upon the process of
quantification, as accrual of liability as a concept stands apart from quantification
of the liability, the amplitude of the saving clauses under DPCO, 1987, DPCO,
1995 and the scope of review under DPCO, 1979, we are in respectful agreement
with the Division Bench Judgment of the Gujarat High Court in Cadila's case
(supra). We, therefore, do not find any merit in the contention of the learned
Senior Counsel that in interpreting paragraph 7 of the DPCO, 1979, the Division
Bench of the Gujarat High Court has totally ignored paragraph 7 (2) (b) of the
DPCO, 1979. In our view, as held by us hereinabove, the same would have no
effect on the accrual of liability as it is only after the amount accrues that the two
options were open to the Government under paragraph 7 (2) (a) and 7 (2) (b).
We, therefore, accept the submission of the learned Additional Solicitor General
that the judgment of the Gujarat High Court has an impact on the issues raised in
the above petition. We consequently reject the submission of the learned Senior
Counsel Shri Seervai that the said judgment has no application.
30. In the light of the above, we do not find any merit in the above
petition. It is clarified that since the petitioners 1 and 3 are an Association of
their Members and have filed the present petition on their behalf, the members of
the petitioners who have been issued the said show cause notices may file
appropriate replies to the said show cause notices and ultimately on the basis of
the available record, it is for the Respondents to pass appropriate orders on the
KPP -53- WP No. 2368 of 1996
show cause notices. If, in a given case, there is no record available, it would be for
the Respondents to take an appropriate decision in accordance with law.
31. We, therefore, dismiss the above petition and discharge the Rule.
32. In view of the dismissal of the Writ Petition, all the above Notices of
Motion would not survive and are accordingly disposed of as such.
ig P.B. MAJMUDAR, J.
R.M. SAVANT, J.
