Union of India & ANR Vs. Cynamide India Ltd. & ANR [1987] INSC 104 (10 April 1987)
1987 Latest Caselaw 104 SC

Union of India & ANR Vs. Cynamide India Ltd. & ANR [1987] INSC 104 (10 April 1987)

Reddy, O. Chinnappa (J) Reddy, O. Chinnappa (J) Singh, K.N. (J) Citation: 1987 Air 1802 1987 Scr (2) 841 1987 Scc (2) 720 Jt 1987 (2) 107 1987 Scale (1)728

Citator Info : F 1987 Sc2351 (3) Apl 1988 Sc 686 (9) D 1988 Sc1301 (8) R 1988 Sc1737 (75) R 1990 Sc 334 (102) E 1990 Sc1277 (31,38,43) R 1990 Sc1851 (30)

ACT:

Drugs (Prices Control) Order, 1979: Paragraphs 3, 12, 13 & 27: Bulk Drugs--Price fixation of--Whether legislative activity--Principles of natural justice whether applicable to-Cost of production-----Whether can be determined by a subordinate legislating Body--Price fixation-Review--Nature of--Formulations--Fixation of retail prices--Whether to await the result of review application.

Constitution of India, Articles 32 & 226--Essential Commodities-Price fixation of---Whether matter for investigation and interference by Court.

Practice and Procedure: Essential Commodities--Price fixation of--Interim order staying implementation of notification fixing prices--Courts not to pass orders which would be against public interest.

Constitution of India, Article 39(b)--Material resources of the community--Distribution of to sub-serve common good--Obligations of State.

HELD:

Paragraph 3 of the Drugs (Prices Control) Order, 1979 made by the Central Government in exercise of powers under s. 3(2)(c) of the Essential Commodities. Act, 1955 empowers the Government, after making such enquiry as it deems fit, to fix the maximum price at which the indigenously manufactured bulk drug shall be sold. Clause (2) of Paragraph 3 provides that while so fixing the price of a bulk drug, the Government may take into account the average cost of production of such bulk drug manufactured by a efficient manufacturer and allow a reasonable return on net worth. Paragraph 12 empowers the Government to fix leader prices of formulations of categories I and II, while paragraph 13 empowers the Government to fix retail prices of formulations of category III. Paragraph 27 enables any person aggrieved by any notification or order under the various paragraphs aforesaid to appeal to the Government for a review.

The Central Government issued notifications under paragraph 3 842 of the 1979 Order fixing the maximum prices at which various indigenously manufactured bulk drugs could be sold. The manufacturers first filed review applications under para- graph 27 of the Order and thereafter writ petitions under Art. 226 of the Constitution challenging the notifications.

The High Court quashed those notifications 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 issued during the pendency of review petitions were also quashed.

In the appeal by the Union of India, it was contended that the fixation of maximum price under paragraph 3 of the Order was a legislative activity and, therefore, not subject to any principle of natural justice, that paragraph 27 of the Order gave a remedy to the manufacturers to seek a review of the order fixing the maximum price under paragraph 3, that such review did not partake the character of a judicial or quasi, judicial proceedings, and that at the time of the hearing of the review application the matter under- went thorough and detailed discussion between the parties and the Government as well as the Bureau of Industrial Costs and Prices, and that the prices had not been fixed in an arbitrary manner.

For the respondents, it was contended that unlike other price control legislations, the Drugs (Prices Control) Order was designed to induce better production by providing for a fair return to the manufacturers; that the provision for an enquiry proceeding the determination of the price of a bulk drug, the prescription in paragraph 3, clause 2 that the average cast of production of the bulk drug manufactured by an efficient manufacturer should be taken into account and that a reasonable return on net worth should be allowed, and the provision for a review of the order determining the price, established that price fixation under the Order was a quasi-judicial activity obliging the observance of the rules of natural justice; that the review, for which provision is made by paragraph 27, was certainly of quasi-judicial character and, therefore, it was necessary that the manufacturers should be informed of the basis for the fixation of the price, that the price had been fixed in an arbitrary manner and the Government was not willing to disclose the basis on which the prices were fixed on the pretext that it may involve disclosure of matters of confidential nature; that since the price of formulations were dependent on the prices of bulk drugs, these should not have been prescribed until the review application was disposed of, that the undertaking given by the parties before the High Court while obtaining ex-parte interim order to maintain the status quoon the prices of bulk drugs and formulations prevailing before the issue of notifications, and in case of dismissal of their petitions to deposit the difference in the prices of the formulations in the Court, lapsed with the disposal of the writ petition and it could no longer be enforced; and that the delay in filing special leave petitions against other manufacturers should not be condoned as the Government was well versed litigant as compared to private litigants.

Allowing the appeal, the Court,

HELD: 1. Price fixation is neither the function nor the forte of the Court. The Court is concerned neither with the policy nor with the rates. But it has jurisdiction to en- quire into the question, in appropriate proceedings, whether relevant considerations have gone in and irrelevant considerations kept out of the determination of the price. For example, if the legislature has decreed the pricing policy and prescribed the factors which should guide the determination of the price, the Court will, if necessary, enquire into the question whether the policy and factors were present to the mind of the authorities specifying the price.

Its examination would stop there. The mechanics of price fixation are not concern of the executive. The Court will not revaluate the considerations even if the prices were demonstrably injurious to some manufacturers or producers.

It will, of course, examine if there was any hostile discrimination. [852E-H] Secretary of Agriculture v. Central Reig Refining Company, 338 604; Prag Ice & Oils Mills v. Union of India, [1978] 3 SCC 459 and Welcom Hotel v. State of Andhra Pradesh, [1983] 4 SCC 575, referred to.

2. Profiteering, by itself, is evil. Profiteering in the scarce resources of the community, much needed life-sustain- ing food stuffs and fife saving drugs is diabolic. It is a menace which has to be lettered and curbed. The Essential Commodities Act, 1955 is a legislation towards that end, in keeping with the duty of the State enshrined in Art. 39(b) of the Constitution towards securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good. [851E-F] The right of the citizen to obtain essential articles at fair prices and duty of the State to provide them are thus transformed into the power of the State to fix prices and obligation of the producer to charge no more than the price fixed. [854F] 844 Shree Meenakshi Mills Ltd. v. Union of India, [1974] 1 SCC 468; Hari Shankar Bagla v. State of Madhya Pradesh, [1955] 1 SCR 380; Union of India v. Bhanamal Gulzarimal, [1960] 2 SCR 627; Sri Krishna Rice Mills v. Joint Director (Food), (unreported), State of Rajasthan v. Nathmal and Mithamal, [1954] SCR 982; Narendra Kumar v. Union of India, [1960] 2 SCR 375, Panipat Co-operative Sugar Mills v. Union of India, [1973] 1 SCC 129; Anakapalle Co-operative Agricultural and Industrial Society Ltd. v. Union of India, [1973] 3 SCC 435 and Premier Automobiles Ltd. v. Union of India, [1972] 2 SCR 526, referred to.

3.1 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 directed against a particular situation. It is intended to operate in future. It is conceived in the interest of the general consumer public. [854E-F]

3.2 Price fixation is more in the nature of a legislative activity than administrative. 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. [853F- H; 854A] Secretary of Agriculture v. Central Reig Refining Company, 338 US 604, and Saraswati Industrial Syndicate Ltd. v.

Union of India, [1974] 2 SCC 630, referred to.

3.3.1 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 deter- mined according to the statutory guidelines laid down by it.

In such situations the determination of price may acquire a quasi-judicial character. [854G-H; 855A] 3.3.2 Section 3(2)(f) of the Essential Commodities Act enables the 845 Central Government to make an order requiring any person engaged in the production of any essential commodity to sell the whole or a specific part of the quantity produced by him to the Government or its nominee. Section 3(3)(C) provides for the determination of the price to be paid to such a person. If the provisions of s. 3(2)(c), under which the price of an essential commodity may be controlled, are contrasted with s. 3(3)(C) under which payment is to be made for a commodity required to be sold by an individual to the Government, the distinction between a legislative act and a non-legislative act will at once become clear. The order made under s. 3(3)(c), which is not in respect of a single transaction, nor directed to a particular individual, is clearly a legislative act, while an order made under s.

3(3)(C), which is in respect of a particular transaction of compulsory sale from a specific individual, is a no legislative act. [860B-H; 861A-B]

3.3 The order made under s. 3(2)(c) controlling the price of an essential commodity may itself prescribe the manner in which price is to be fixed but that will not make the fixation of price a non-legislative activity, when the activity is not directed towards a single individual or transaction but is of a general nature, covering all individuals and all transactions. The legislative character of the activity is not shed and an administrative. or quasi- judicial character acquired merely because guidelines pre- scribed by the statutory order have to be taken into ac- count. [861B-C]

3.4 Legislative action, plenary or subordinate, is not subject to rules of natural justice. In the case of Parliamentary legislation, the proposition is self evident. In the case of subordinate legislation, it may happen that Parliament may itself provide for a notice and for a hearing, in which case the substantial non-observance of the statutorily prescribed mode of observing natural justice may have the effect of invalidating the subordinate legislation. But where the legislature has not chosen to provide for any notice or hearing, no one can insist upon it and it will not be permissible to read natural justice into such legislative activity. [852H; 853A-C] New India Sugar Works v. State of Uttar Pradesh, [1981] 2 SCC 293; Laxmi Khandsari v. State of Uttar Pradesh, [1981] 2 SCC 600; Ramesh Chandra Kachardas Porwal v. State of Maharashtra, [1981] 2 SCC 722; Bates v. Lord Hailsha, of St.

Marylebone, [1972] 1 WLR 1973; Edinburgh and Dalkeith Rv. v. Wauchope Per Lord Brougham, [1842] 8 CI & F 700, 720; British Railways Board v. Pickin, [1974] 1 All ER 609, Sarkar Sasta Anaj Vikreta Sangh v. State of Madhya Pradesh, 846 [1981] 4 SCC 471 and Tharoo Mal v. Puranchand, [1978] 1 SCC 102, referred to.

3.5 Nothing in the scheme of the Drugs (Prices Control) Order, 1979 leads to the inference that price fixation under that 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 that 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. [871G-H; 872A-B]

4.1 Occasionally the legislature directs the subordinate legislating body to make 'such enquiry as it think fit' before making the subordinate legislation. In such a situation, while such enquiry by the subordinate legislating body as it deems fit is a condition precedent to the subordinate legislation, the nature and the extent of the enquiry is in the discretion of the subordinate legislating body and the subordinate legislation is not open to question on the ground that the enquiry was not as fur as it might have been. The provision for such an enquiry is generally an enabling provision, intended to facilitate the subordinate legislating body to obtain relevant information' from all and whatever source considered necessary. It is the sort of enquiry which the legislature itself my cause to he made before legislating, an enquiry which will not confer any right an anyone other than the enquiring body. It is different from an enquiry in which an opportunity is required to he given to persons likely to he 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. [853D-F]

4.2 In the present case, paragraph 3 of the Drugs (Prices Control) Order, 1979 is an enabling provision. "Such an enquiry as it thinks fit" contemplated by it is an enquiry of the former character to he made for the purposes of fixing the maximum price at which a bulk drug may he sold, with a view to regulating its equitable distribution and making it available at a fair price for the benefit of the ultimate consumer in consonance with 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 he ascertained and making the drug available to them at a fair price is its ultimate aim. The enquiry is to he made from that angle and directed towards that end. Information may he gathered from whatever source considered desirable by the Government. [872B-E] 847

4.3 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'. Being a subordinate or dele- gated legislative activity, the enquiry 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. [866B-D]

5.1 The review provided by paragraph 27 of the Order, of the order made under paragraph 3 fixing maximum price of indigenously manufactured drugs, and under paragraphs 12 and 13 fixing leader and retail prices of formulations, is akin to a post-decisional hearing which is sometimes afforded after the making of some administrative orders, but not truly so. It is a curious amalgam of a hearing which occasionally precedes a subordinate legislative activity such as the fixing of municipal rates etc. and a post decisional 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 he experienced by them consequent on the price fixation, whereupon the Government may make appropriate orders. More precisely it is a review of subordinate legislation by a legislating body at the instance of an aggrieved person. [873B; 874C-D]

5.2 The reviewing authority has the fullest freedom and discretion under paragraph 27 of the Order 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 made under that paragraph 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. [873H; 874A- B] Vrajlal Manilal & Co. v. Union of India & Anr., [1964] 7 SCR 97; Shivaji Nathubhai v. Union of India & Ors., [1960] 2 SCR 775; Maneka Gandhi v. Union of India,[1978] 2 SCR 621;

Swadeshi Cotton Mills v. 848 Union of India, [1981] 2 SCR 533 and Liberty Oil Mills v. Union of India, [1984] 3 SCR 676, distinguished.

6.1 So long as the method prescribed and adopted by the subordinate legislating body in arriving at the cost of production of bulk drugs was not arbitrary and opposed to the principal statutory provisions, it could not legitimate- ly be questioned. [878F]

6.2 It is open to the subordinate legislating body to prescribe and adopt its own mode of ascertaining the cost of production and the items to be included and excluded in so doing. Such a body is under no obligation to follow the method adopted by the Income-tax authorities in allowing expenses for the purpose of ascertaining income and assessing it. There may be many items of business expenditure which may be allowed by Income-tax authorities as legitimate expenses but which can never enter the cost of production.

It is open to such an authority to adopt a rough and read but otherwise not unreasonable formula rather than a needlessly intricate so-called scientific formula. [878D-H] It could not therefore, be said in the instant case, that the subordinate legislating authority acted unreasonably in prescribing the norms in the manner it has done.

7.1 From the legislative nature of the activity of the Government, it is clear that it 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 per- son, 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 manufacturer' and 'the reasonable return on net worth'. [874C-E]

7.2 In the instant case, the procedure followed by the Government in furnishing the requisite particulars at the time of the hearing of the review applications and discussing across the table the various items that hod been taken into account was sufficient compliance with the demands of fair play in the case of the class of persons claiming to by affected by the fixation of maximum price under the Drugs (Prices Control) Order. It cannot, therefore, be said that there was anything unfair in the procedure adopted by the Government. [876D-E]

8. This Court cannot constitute itself into a court of appeal over 859 the Government in the matter of price fixation. The questions that obsolete quantitative usages had been taken into consideration, proximate cost data had been ignored, and the data relating to the year ending November 1976 had been adopted as the basis; that there were errors in totaling, errors in the calculation of prices of utilities, errors in the calculation of 'net worth' and many other similar errors, were questions to be raised before the Government in the review application under paragraph 27. [877A-C]

9.1 It is the necessary duty of the Government to proceed to fix the retail price of a formulation as soon as the price of the parent bulk drug is fixed. Though the price fixation of formulations is dependent on the price of the bulk drug, it is not to await the result of a review application which in the end may turn out to be entirely without substance. In view of the public interest, therefore, it is necessary that the price of formulation should be fixed close on the heels of the fixation of bulk drug price.

[879D-E; G]

9.2 The ups and downs of commerce are inevitable it is not possible to devise a fool proof system to take care of every possible defect and objection. It is certainly not a matter at which the court could take a hand. All that court may do is to direct the Government to dispose of the review application expeditiously according to a time bound programme. [879F-G]

10. Though the price of a bulk drug is dependent on innumerable variables, it does not follow that the notification fixing the maximum price must necessarily be struck down as obsolete by the mere passage of time. The applications for review must be dealt with expeditiously and when- ever they are not so dealt with, the aggrieved person may seek a mandamus from the court to direct the Government to deal with the review application within a time frame-work.

[880B-C]

11. Where prices of essential commodities are fixed in order to maintain or increase their supply or for securing their equitable distribution and availability at fair prices, the court should not make any interim order staying the implementation of the notification fixing the prices.

Such orders are against the public interest and ought not to be made by a court unless it is satisfied that no public interest is going to suffer. In matters of fixation of price, it is the interest of the consumer public that must come first and any interim order must take care of that interest. [880D-F] 850 In the instant case, the order made by the High Court has the manufacturers on terms, but the consumer public has been left high and dry. [881D]

12. Apart from the fact that an appeal is ordinarily considered to be a continuation of the original proceeding, in the present case, further orders of the Supreme Court were also in contemplation and such further orders could only be made if appeals were preferred to the Supreme Court.

There was no doubt in anyone's mind that the matter would be taken up in appeal to the Supreme Court whichever way the writ petitions were decided. The undertakings given by the parties in the present cases, were thus intended to and do continue to subsist. [881E-F] [The Government is directed to dispose of the review applications after giving notice of hearing to the manufacturer. The hearing to be given within two months and the review applications disposed of within two weeks after the conclusion of the hearing.]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1603 of 1985 etc.

From the Judgment and Order dated 17.12.1984 of the Delhi High Court in C.W.P. No. 820 of 1981.

G. Ramaswamy, Additional Solicitor General G. Subramani- um, C.V. Subba Rao and A. Subba Rao for the Appellants.

A.B. Diwan, S.I. Thakar, D.D. Udeshi, H.S. Merchant, Ravinder Narain, Mrs. A.K. Verma and D.N. Mishra for the Respondents.

The Judgment of the Court was delivered by CHINNAPPA REDDY, J. It was just the other day that our brothers Ranganath Misra and M.M. Dutt, JJ. had to give directions in a case (Vincent Panikurbangara v. Union of India) where a public spirited litigant had complained about the unscrupulous exploitation of the Indian Drug and Pharmaceutical Market by multinational Corporations by putting in circulation low-quality and even deleterious drugs. In this group of cases we are faced with a different problem of alleged exploitation by big manufacturers of bulk drugs. The problem is that of high prices, bearing, it is said, little relation to the cost of production to the manufacturers. By way of illustration, we may straightaway mention a glaring instance of such high-pricing which was 851 brought to our notice at the very commencement of the hear- ing. 'Barlagan Ketone', a bulk drug, was not treated as an essential bulk drug under the Drugs (Prices Control) Order, 1970 and was not included in the schedule to that order. A manufacturer was, under the provisions of that Order, free to continue to sell the drug at the price reported by him to the Central Government at the time of the commencement of the order, but was under an obligation not to increase the price without the prior approval of the Central Government.

The price which the manufacturer of Barlagan Kotone, reported to the Central Government in 1971 was Rs.24,735.68 per Kg. After the 1979 Drugs (Prices Control) Order came into force, the distinction between essential and non-essential bulk drugs was abolished and a maximum price had to be fixed for Barlagan Ketone also like other bulk drugs. The manufacturer applied for fixation of price at Rs.8,500 per Kg. The Government, however, fixed the price at Rs.1,810 per Kg. For the moment, ignoring the price fixed by the Government, we see that the price of Rs.24,735 per Kg. at which the manufacturer was previously selling the drug and at which he continues to market the drug to this day because of the quashing of the order fixing the price by the High Court, is so unconsciously high even compared with the price claimed by himself that it appears to justify the charge that some manufacturers do indulge in 'profiteering'.

Profiteering, by itself, is evil. Profiteering in the scarce resources of the community, much needed life-sustaining food-stuffs and lifesaving drugs is diabolic. It is a menace which had to be lettered 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 sub serve the common good'. The Essential Commodities Act is 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 Drugs (Prices Control) Order, 1979 were made.

852 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 de- pendent on prices of 'buli 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.

Before we turn to the terms of the Drugs (Prices Control) Order, 1979 we would like to make certain general observations and explain the legal position in regard to them.

We start with the observation, 'Price-fixation is neither the function nor the forte of the Court'. We concern ourselves neither with the policy nor with the rates. But we do not totally deny ourselves the jurisdiction to enquire into the question, in appropriate proceedings, whether relevant considerations have gone in and irrelevant considerations kept out of the determination of the price. For example, if the Legislature has decreed the pricing policy and prescribed the factors which should guide the determination of the price, we will, if necessary, enquire into the question whether the policy and the factors are present to the mind of the authorities specifying the price. But our examination will stop there. We will go no further. We will not deluge ourselves with more facts and figures. The assembling of the raw materials and the mechanics of price fixation are the concern of the executive and we leave it to them. And, we will not revaluate the considerations even if the prices are demonstrably injurious to some manufacturers or producers. The Court will, of course, examine if there is any hostile discrimination. That is a different 'cup of tea' altogether.

The second observation we wish to make is, legislative action, 853 plenary or subordinate, is not subject to rules of natural justice. In the case of Parliamentary legislation, the proposition is self-evident. In the case of subordinate 'legislation, it may happen that Parliament may itself provide for a notice and for a hearing-there are several instances of the legislature requiring the subordinate legislating authority to give public notice and a public hearing before say, for example, levying a municipal rate--,in which case the substantial non-observance of the statutorily prescribed mode of observing natural justice may have the effect of invalidating the subordinate legislation.

The right here given to rate payers or others is in the nature of a concession which is not to detract from the character of the activity as legislative and not quasi judicial. But, where the legislature has not chosen to provide for any notice or hearing, no one can insist upon it and it will not be permissible to read natural justice into such legislative activity.

Occasionally, the legislature directs the subordinate legislating body to make 'such enquiry as it thinks fit' before making the subordinate legislation. In such a situation, while such enquiry by the subordinate legislating body as it deems fit is a condition precedent to the subordinate legislation, the nature and the extent of the enquiry is in the discretion of the subordinate legislating body and the subordinate legislation is not open to question on the ground that the enquiry was not as full as it might have been. The provision for 'such enquiry as it thinks fit' is generally an enabling provision, intended to facilitate the subordinate legislating body to obtain relevant information from all and whatever source and not intended to vest any right in any one other than the subordinate-legislating body. It is the sort of enquiry which the legislature itself may cause to be made before legislating, an enquiry which will not confer any right on anyone.

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 845 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 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 directed 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 there from, 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 855 such situations the determination of price may acquire aquasi-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 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.

The three observations made by us are well-settled and well founded on authority. The cases to which we shall now refer, will perhaps elucidate what we have tried, unfelicitously, to express.

In Shree Meenakshi Mills Ltd. v. Union of India, [1974] 1 SCC 468 a notification fixing the ex-factory price of certain counts of cotton yarn was questioned on the ground that the price had been arbitrarily fixed. After referring to Hari Shanker Bagla v. State of Madhya Pradesh, [1955] 1 SCR 380; Union of India v. Bhanamal Gulzarimal, [1960] 2 SCR 627; Sri Krishna Rice Mills v. Joint Director (Food), (unreported); State of Rajasthan v. Nathmal and Mithamal, [1954] SCR 982; Narendra Kumar v. Union of India, [1960] 2 SCR 375; Panipat Co-operative Sugar Mills v. Union of India, [1973] 1 SCC 129; Anakapalle Co-operative Agricultural & Industrial Society Ltd. v. Union of India, [1973] 3 SCC 435 and Premier Automobiles Ltd. v. Union of India, [1972] 2 SCR 526 a constitution bench of the court observed that the dominant object and the purpose of the legislation was the equitable distribution and availability of commodities at fair price and if profit and the producer's return were to be kept in the forefront, it would result in losing sight of the object and the purpose of the-legislation. If the prices of yarn or cloth were fixed in such a way to enable the manufacturer or producer recover his cost of production and secure a reasonable margin of profit, no aspect of infringement of any fundamental right could be said to arise. It was to be remembered that the mere fact that some of those were engaged in the industry, trade or commerce alleged' that they were incurring loss would not render the law stipulating the price unreasonable. It was observed, "The control of prices may have effect either on maintaining or ,increasing supply of commodity or securing equiable distribution and availability at fair prices. The controlled price has to retain this equilibrium in the supply and demand of the commodity. The cost of production, a reasonable return to the producer of the commodity are to be taken into account. The producer must have an incentive to produce.

The fair price must be fair not only from the point of view of the consumer but also from the point of view of the producer. In fixing the prices, a price line has to be held in order to give preference or pre-dominant consideration to the interest of the consumer or the general public over that of the producers in respect of essential commodities. The aspect of ensuring availability of the essential commodities to the consumer equitably and at fair price is the most important consideration.

The producer should not be driven out of his producing business. He may have to bear loss in the same way as he does when he suffers losses on account of economic forces operating in the business. If an essential commodity is in short supply or there is hoarding, concerning or there is unusual demand, there is abnormal increase in price.

If price increases, it becomes injurious to the consumer. There is no justification that the producer should be given the benefit of price increase attributable to hoarding or cornering or artificial short supply. In such a case, if an "escalation" in price is contemplated at intervals, the object of controlled price may be stultified. The controlled price will enable both the consumer and the producer to tide over difficulties. therefore, any restriction in excess of what would be necessary in the interest of general public or to remedy the evil has to be very carefully considered so that the producer does not perish and the consumer is not crippled." The cases of Panipat Sugar Mills and Anakapalle Co-operative Agricultural Society were distinguished on the ground that they were governed by sub-section (3C) of sec. 3 of the Essential Commodities Act and therefore, had no relevance to the case before the Constitution Bench. The case of Premier Automobiles was distinguished on the ground that the decision was rendered by invitation and on the agreement of the parties irrespective of technical and legal questions. The Court quoted with approval a passage from Secretary of Agriculture v. Central Reig Refining Company, 330 US 604, stating, 857 "Suffice it to say that since Congress fixed the quotas on a historical basis it is not for this Court to reweigh the relevant factors and, per chance, substitute its notion of expediency and fairness for that of Congress.

This is so even though the quota thus fixed may demonstrably be disadvantageous to certain areas or persons. This Court is not a tribunal for relief from the crudities and inequities of complicated experimental economic legislation ".

In Saraswati Industrial Syndicate Ltd. v. Union of India, [1974] 2 SCC 630; the Court observed, "Price-fixation is more in the nature of a legislative measure even though it may be based upon objective criteria found in a report or other material. It could not, there- fore, give rise to a complaint that a rule of natural justice has not been followed in fixing the price. Nevertheless, the criterion adopted must be reasonable. Reasonableness, for purposes of judging whether there was an "excess of power" or an "arbitrary" exercise of it, is really the demonstration of a reasonable nexus between the matters which are taken into account in exercising a power and the purposes of exercise of that power." It was also reiterated that the decision in Shree Meenakshi Mills' case was based on a special agreement between the parties and therefore, had no relevance to the question before them.

In Prag Ice & Oil Mills v. Union of India, [1978] 3 SCC 459 a Constitution Bench of seven judges of this court had to consider the validity of the Mustard Oil (Price Control) Order, 1977, an Order made in exercise of the powers conferred upon Central Government by the Essential Commodities Act. Chandrachud, J. speaking for the court approved the observation of Beg, CJ. in Saraswati Industrial Syndicate that it was enough compliance with the Constitutional man- date if the basis adopted for price fixation was not shown to be so patently unreasonable as to be in excess of the power to fix the price. He observed "In the ultimate analysis the mechanics of price fixation has necessarily to be left to the judgment of the Executive and unless it is patent that there is hostiled discrimination against a class of operators, the processual basis of price 858 fixation has to be accepted in the generality of cases as valid." Referring to Shri Meenakshi Mills, the learned CJ. reaffirmed the approval accorded to the statement in Secretary of Agriculture v. Central Reig Refining Company (supra) that Courts of Law could not be converted into tribunals for relief from the crudities and inequities of complicated experimental economic legislation. Panipat Sugar and Anakap palle Society were again referred to and it was pointed out that those cases turned on the language of s. 3(3C) of the Essential Commodities Act. Premier Automobiles was considered and it was affirmed that the judgment in that case could not be treated as precedent and could not afford any appreciable assistance in the decision of price fixation cases as it proceeded partly on agreement between the par- ties and partly on concessions made at the bar. Beg, CJ. who delivered a separate opinion for himself and for Desai, J.

agreed that the judgment in Premier Automobiles was not to provide a precedent in price fixation case. He also reaffirmed the proposition that price fixation was in the nature of a legislative measure and could not give rise to a com- plaint that natural justice was not observed. He indicated the indicia which led him to the conclusion that price fixation was a legislative measure. He observed:

"We think that unless, by the terms of a 'particular statute, or order, price fixation is made a quasi-judicial function for specified purposes or cases, it is really legislative in character in the type of control order which is now before us because it satisfies the tests of legislation. A legislative measure does not concern itself with the facts of an individual case. It is meant to lay down a general rule applicable to all persons or objects or transactions of a particular kind or class. In the case before us, the Control Order applies to sales of mustard oil anywhere in India by any dealer. Its validity does not depend on the observance of any procedure to be complied with or particular types of evidence to be taken on any specified matters as conditions precedent to its validity. The test of validity is constituted by the nexus shown between the order passed and the purposes for which it can be passed, or in other words by reasonableness judged by possible or probable consequences." In New India Sugar Works v. State of Uttar Pradesh, [1981] 2 SCC 293 859 there was an indication though it was not expressly so stated that the question of observing natural justice did not arise in cases of price fixation. In Laxmi Khandsari v. State of Uttar Pradesh, [1981] 2 SCC 600 it was held that the Sugar Cane Control Order, 1966 was a legislative measure and therefore, rules of natural justice were not attracted.

In Rameshchandra Kachardas Porwal v. State of Maharashtra, [1981] 2 SCC 722 it was observed that legislative activity did not invite natural justice and that making of a declaration that a certain place shall be a principal market yard for a market area under the relevant Agricultural Produce Markets Acts was an act legislative in character. The observation of Magarry, J. in Bates v. Lord Hailsha, of St. Marylebone [1972] 1 WLR 1973 that the rules of natural justice do not run in the sphere of legislation, primary or delegated, was cited with approval and two well known text books writers Paul Kackson and Wades H.W.R. were also quoted. The former had said, "There is no doubt that a minister, or any other body, in making legislation, for example, by statutory instrument or by law, is not subject to the rules of natural justice--Bates v. Lord Hailsham of St. Marylebone (supra)--any more than is Parliament itself; Edinburgh and Dalkeith Rv. v. Wauchope per Lord Brougham, [1842] 8 CL & F 700, 720; British Railways Board v. Pickin, [1974] 1 All ER 609. The latter had said, "There is no right to be heard before the making of legislation, whether primary or dele- gated, unless it is provided by statutes." In Sarkari Sasta Anaj Vikreta Sangh v. State of Madhya Pradesh, [1981] 4 SCC 471; it was pointed out that the amendment of the Madhya Pradesh Food Stuffs Distribution Control Order was a legislative function and there was, therefore, no question of affording an opportunity to those who were to be affected by it.

In Welcom Hotel v. State of Andhra Pradesh, [1983] 4 SCC 575 the observations of Chandrachud, CJ. in Prag Ice and Oil Mills were quoted with approval in connection with the fixation of prices of food stuffs served in restaurants.

In Tharoe Mal v. Puranchand, [1978] 1 SCC 102 one of the questions was regarding the nature of the hearing to be given before imposing municipal taxes under the Uttar Pradesh Municipalities Act, 1916. It was held, " ....... the procedure for the imposition of the tax is legislative and not quasi- judicial ...... The right to object, however, seems to be given at the stage of proposals of the tax only as a concession to requirements of 860 fairness even though the procedure is legislative and not quasi-judicial." We mentioned that the Panipat and the Anakapalle eases were distinguished in Shree Meenakshi, and Prag Ice. Panipat and Anakapalle were both cases where the question was regarding the price payable to a person who was required to sell to the Government a certain percentage of the quantity of sugar produced in his mill. The Order requiring him to sell the sugar to the Government was made under s. 3(2)(f) of the Essential Commodities Act under which the Central Government was enabled to make an order requiring any person engaged in the production of any essential commodity to sell the whole or specified part of the quantity produced by him to the Government or its nominee. It will straight-away be seen that an order under s. 3(2)(f) if a specific order directed to a particular individual for the purpose of enabling the Central Government to purchase a certain quantity of the commodity from the person holding it. It is an order for a compulsory sale. When such a compulsory sale is required to be made under s. 3(2)(f), the question naturally arises what is the price to be paid for the commodity purchased? Section 3(3C) provides for the ascertainment of the price. It provides that in calculating the amount to be paid for the commodity required to be sold regard is to be had to--(a) the minimum price, if any, fixed for sugarcane by the Central Government under this section; (b) the manufacturing cost of sugar; (c) the duty or tax, if any, paid or payable thereon; and (d) the securing of a reasonable return on the capital employed in the business of manufacturing sugar. It is further prescribed that different prices may be determined, from time to time, for different areas or for different factories or for different kinds of sugar. It is to be noticed here that the payment to be made under s.

3(3C) is not necessarily the same as the controlled price which may be fixed under s. 3(2)(c) of the Act. Section 3(2)(c) of the Act, we have already seen, enables the Central Government to make an order controlling the price at which any essential commodity may be bought or sold, if the Central Government is of opinion that it is necessary or expedient so to do for maintaining or increasing supplies of any essential commodity or in securing their equitable distribution and availability at fair prices. Section 3(3C) provides for the determination of the price to be paid to a person who has been directed by the Central Government by an Order made under s. 3(2)(c) to sell a certain quantity of an essential commodity to the Government or its nominee. While s. 3(2)(c) contemplates an Order of a general nature, s.

3(3C) contemplates a specific transaction. If the provisions of s. 3(2)(c) under which the price of an essential commodity may be controlled are contrasted with s. 3(3C) under which payment is to be made for a commodity require to be sold by an individual to the Government, the distinction between a legislative act and a non-legislative act will at once become clear. The Order made under s. 3(2c), which is not in respect of a single transaction, nor directed to particular individual is clearly a legislative act, while an Order made under s. 3(3C) which is in respect of a particular transaction of compulsory sale from a specific individual is a non-legislative act. The Order made under s. 3(2)(c) controlling the price of an essential commodity may itself prescribe the manner in which price is to be fixed but that will not make the fixation of price a non-legislative activity, when the activity is not directed towards a single individual or transaction but is of a general nature, covering all individuals and all transactions. The legislative character of the activity is not shed and an administrative or quasi-judicial character acquired merely because guide- lines prescribed by the statutory order have to be taken into account.

We may refer at this juncture to some illuminating passages from Schwrtz's book on 'Administrative Law'. He said:

"If a particular function is termed "legislative" or "rulemaking" rather than "judicial" or "adjudication," it may have substantial effects upon the parties concerned. If the function is treated as legislative in nature, there is no right to notice and hearing, unless a statute expressly requires them. If a hearing is held in accordance with a statutory requirement, it normally need not be a formal one, governed by the requirements discussed in Chapters 6 and 7. The characterization of an administrative act as legislative instead of judicial is thus of great significance." XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX X "As a federal court has recently pointed out, there is no "bright line" between rule-making and adjudication. The most famous pre-APA attempt to explain the difference between legislative and judicial functions was made by Justice Holmes in Prentis v. Atlantic Coast Line Co. "A judicial inquiry," said he, "investigates, declares and enforces liabilities as they stand on present or past facts and under laws supposed already to exist. That is its purpose and end. Legislation on the other hand looks to the future 862 and changes existing conditions by making a new rule to be applied thereafter to all or some part of those subject to its power." The key factor in the Holmes analysis is time: a rule prescribes future patterns of conduct; a decision determines liabilities upon the basis of present or past facts." "The element of applicability has been empha- sized by others as the key in differentiating legislative from judicial functions. According to Chief Justice Burger, "Rulemaking is normally directed toward the formulation of requirements having a general application to all members of a broadly identifiable class." An adjudication, on the other hand, applies to specific individuals or situations. Rulemaking affects the rights of individuals in the abstract and must be applied in a further proceeding before the legal position of any particular individual will be definitely affected; adjudication operates conceretly upon individuals in their individual X X capacity." We may now turn our attention to the two Drugs (Prices Control) Order of 1970 and 1979, both of which were made by the Central Government in exercise of its powers under s. 3 of the Essential Commodities Act.

The Drugs (Prices Control) Order, 1970 defined 'Bulk Drugs' as follows:

"Bulk drugs" means "any unprecessed phamaceutical, chemical, biological and plant product or medicinal gas conforming to pharmacopocial or other standards accepted which is used as such or after being processed into formulations and includes an essential bulk drug." Bulk drugs were divided into essential bulk drugs which were included in the schedule and bulk drugs which were not so included. In the case of essential bulk drugs, paragraph 4 of the order enabled the Central Government to fix the maximum price at which such essential bulk drugs should be sold. In the case of bulk drugs, which were not included in the schedule, a manufacturer was entitled to continue to market the product at the same price at which he was marketing the products at the time of the commencement of the order. He was required to report this price to the Central Government within two 863 weeks of the commencement of the order and was further prohibited from increasing the price without obtaining the approval of the Central Government.

A Committee on Drugs and Pharmaceutical Industry, popularly known as the Hathi Committee was appointed by the Government of India to enquire into the various facets, of the Drug Industry in India. One of the terms of reference was 'to examine the measures taken so far to reduce prices of drugs for the consumer, and to recommend such further measures as may be necessary to rationalise the prices of basic drugs and formulations.' The Hathi Committee noticed that 'in a country like India where general poverty and the wide disparities in levels of income between different sections existed' it was particularly important to emphasise 'the social utility of the industry and the urgent need for extending as rapidly as possible certain minimum facilities in terms of preventive and curative medicines to the large mass of people both urban and rural'. It was said, "The concern about drug prices, therefore, really arises from the fact that many of them are essential to the health and welfare of the community; and that there is no justification for the drug industry charging prices and having a production pattern which is based not upon the needs of the community but on aggressive marketing tactices and created demand." The Government of India accepted the report of the Hathi Committee and announced in Parliament the 'Statement on Drug Policy' pursuant to which the Drugs (Prices Control) Order, 1970 was repealed and the Drugs (Prices Control) Order, 1979 was made. Paragraph 44 of the Statement on Drug Policy in 1978 dealt with 'pricing policy' and it may be usefully extracted here. It was as follows:- "The Hathi Committee had recommended that a return post tax between 12 to 14% on equity that is paid up capital plus reserves, may be adopted as the basis for price fixation, depending on the importance and complexity of the bulk drug. In the case of formulations, the Hathi Committee felt that the principle of selectivity could be introduced in terms of (a) the size of the units, (b) selection of items; and (c) controlling the prices only of market leaders, in particular, of products for which price control is contemplated. The Hathi Committee considered that units (other 864 than MRTP units) having only turnover of less than Rs.1 crore may be exempted from price control. Alternatively, all formulations (other than those marketed under generic names) which have an annual sale in the country in excess of Rs.15 lakhs (inclusive of excise duty) may be subjected to price control, irrespective of whether or not the total annual turnover of the unit is in excess of Rs.1 crore. The ceiling price will be deter- mined taking into account the production costs and a reasonable return for the units which are the market leaders. Yet another variant of a selectivity, according to the Hathi Commit- tee, would be to identify product groups which individually are important and which collectively constitute the bulk of the output of the industry. In respect of each item of this list, it would be possible to identify the leading producers who account for about 60% of the sales between them. On the basis of cost analysis in respect of those units, maximum prices may be prescribed and all other units may be free to fix their prices within this ceiling. On balance, the Hathi Committee was of the view that this particular variant selectivity may be administratively simpler." The Drugs (Prices Control) Order, 1979 was made pursuant to this Statement of Policy.

Paragraph 2(a) of the Drugs (Prices Control) Order, 1979 defines 'bulk drug' to mean "any substance including pharmaceutical, chemical, biological or plant product or medicinal gas conforming to pharmacological or other standards accepted under the Drugs and Cosmetics Act, 1940, which is used as such or as in ingredient in any formulations." "Formulation" is defined as follows:- "Formulation means a medicine processed out of, or containing one or more bulk drugs or drugs, with or without the use of any pharmaceutical aids for internal or external use for, or in the diagnosis, treatment, mitigation or prevention of disease in human beings or animals, but shall not include-- (i) any bona fide Ayurvedic (including Sidha) or Unani (Tibb) Systems of medicine;

(ii) any medicine included in the Homoeopathic system of medicine;

865 (iii) any substance to which the provisions of the Drugs and Cosmetics Act, 1940 (XXIII of 1940), do not apply" The expressions "free reserve", "leader price", "net-worth", "now bulk drug", "pooled price," "pre-tax return", "retention price" are defined in the following manner:

""Free reserve" means a reserve created by appropriation of profits, but does not include reserves provided for contingent liability, disputed claims, goodwill, revaluation, and other similar reserves".

"'leader price' means a price fixed by the Government for formulations specified in Category I, Category II or Category III of the Third Schedule in accordance with the provisions of paras. 10 and 11, keeping in view the cost of or efficiency, or both, of major manufacturers of such formulations." "'net-worth' means the share capital of a company plus free reserve, if any." "'new bulk drug' means a bulk drug manufactured within the country, for the first time after the commencement of this Order." "'Pooled price' in relation to a bulk drug, means the price fixed under para 7." "'pre-tax return' means profits before payment of income tax and surtax and includes such other expenses as do not form part of the cost of formulations." "'retention price' in relation to a bulk drug means the price fixed under paras 4 and 7 for individual manufacturers, or importers, or distributors, or such bulk drugs." The distinction between an essential bulk drug included in the schedule and a bulk drug not so included in the schedule, which was made in 1970 Drugs (Prices Control) Order was abandoned in the 1979 Order. Bulk drugs were, however, broadly divided into indigenously 866 manufactured bulk drugs, imported bulk drugs and hulk drugs which were both manufactured indigenously as also imported.

Paragraph 3 of the 1979 Order enables the Government, with a view to regulating the equitable distribution of any indigenously manufactured bulk drug specified in the first or the second schedule and making it available at a fair price and after mak