Andhra HC (Pre-Telangana)
Dr. Reddy'S Laboratories Ltd. vs Secy., Govt. Of India, Ministry Of ... on 16 April, 2004
Equivalent citations: 2004(3)ALD695, 2004(3)ALT781
Author: B. Sudershan Reddy
Bench: B. Sudershan Reddy
JUDGMENT
B. Sudershan Reddy, J
1. These writ petitions are interconnected and require to be disposed of by a common order.
2. The petitioner, Dr. Reddy's Laboratories, inter alia, is a manufacturer of drug known as 'Norfloxacin', which is useful for treatment of urinary infections. The petitioner claims to be the largest manufacturer of 'Norfloxacin' as bulk drug in the country and also exports substantial quantities of the bulk drug,
3. The petitioner in these writ petitions challenges the decisions of the Government of India dated 13.12.1996 and 27.12.1995. The Government of India vide its impugned decision dated 13.12.1996, in exercise of the powers conferred by sub-paragraph (1) of Paragraph-3 of the Drugs (Price Control) Order, 1995 (for short "DPCO, 1995"), fixed the price of the bulk drug 'Norfloxacin' at Rs. 2162/- per kilogram. Likewise, in exercise of power under sub-paragraph (1) of Paragraph-9 of the DPCO, 1995 the Central Government fixed the prices of 'Norfloxacin' tablets as the selling prices exclusive of the excise duty and local tax and accordingly notified the same.
Relevant Clauses of DPCO, 1995:
4. There is no dispute, whatsoever, that the respondents have been vested with the powers under the DPCO, 1995 issued under the Essential Commodities Act, 1955 to fix the prices of all scheduled drugs listed in the First Schedule of the said Order after due enquiry contemplated under Paragraph 3(1) and on the formulations in accordance with the Paragraphs 7, 8 and 9 of the said Order. Paragraph-3 of the DPCO, 1995, which confers power to fix the maximum sale prices of the bulk drugs specified in the First Schedule itself reveals that such a power has been conferred upon the Government with a view to regulate the equitable distribution ad increasing supplies of bulk drugs specified in the First Schedule and making it available at a fair price, from different manufacturers, after making such enquiry as deemed fit. The Government is authorized to fix the prices from time to time by notification in the Official Gazette specifying the maximum sale prices at which such bulk drugs shall be sold. Likewise, Paragraph-8 of the DPCO, 1995 enables the Government to fix retail price of a formulation in accordance with the formula laid down in Paragraph-7 of the Order. Paragraph-7 provides the details of the formula for the purposes of calculation of the retail price to be fixed by the Government. There is an obligation on the manufacturers of the bulk drug with respect to which the enquiry is in progress, to furnish information as required by the Government. Paragraph-3 (2) of the DPCO, 1995 mandates the Government, while fixing the maximum sale price of a bulk drug, to take into consideration a post-tax return of 14% on net worth or a return of 22% of capital employed or in respect of a new plant an internal rate of return of 12% based on long term marginal costing depending upon the option for any of the specified rates of return that may be exercised by a manufacturer of a bulk drug. Sub-paragraph (3) of Paragraph-3 mandates that no person shall sell a bulk drug at a price exceeding the maximum sale price fixed under sub-paragraph (1) plus local taxes, if any.
Gist of submissions;
5. The contention advanced on behalf of the petitioner is that immediately after the Central Government notified the maximum selling price for 'Norfloxacin' formulation, it had addressed a letter to the Ministry on 23.1.1996, inter alia, contending that the cost of bulk drug would work out to Rs. 5789.60 per kilogram and the minimum selling price based on that would work out to Rs. 6257.98 per kilogram. It was pointed out that it was not feasible to sell formulations at the prices notified by the Central Government on 27.12.1995, save and except under heavy losses. It is also stated that the petitioner made several formal applications in terms of Paragraph-8(4) of the DPCO, 1995 for re-fixing of the selling price for 'Norfloxacin' tablets on 24.1.1996. The principal grievance was that the price of the bulk drug was not notified but only the price of the formulation was fixed. That at any rate, it is unnecessary to notice further details in this regard since the Central Government had already notified and fixed the price of the bulk drug and accordingly notified the same, which is also challenged in one of the writ petitions.
6. Sri S. Ravi, learned Counsel for the petitioner submitted that the Central Government in fixing the price of the bulk drug did not follow the methodology prescribed under Paragraph-3 (2) of the DPCO, 1995. Exercise of price fixation by the Central Government essentially is unit specific. The relevant factors that may be unique in respect of each of the manufacturer unit are required to be taken into consideration and price of the bulk drug manufacturer by each of the unit is required to be fixed by the Central Government in exercise of its power. It is also contended that the Central Government failed to adopt the formula specified under Paragraph-7 for the purposes of calculation of retail price of the formulation.
7. Learned Standing Counsel for Central Government submitted that the petitioner in spite of several notices failed to furnish the requisite information in Form I as desired on or before 6.2.1995. The information that was furnished for the period from 1.4.1994 to 31.10.1994 in May 1995 was not in conformity with the provisions of the DPCO, 1995. It is under those circumstances the Central Government was constrained to fix the maximum selling price of the drug 'Norfloxacin' under the provisions of Paragraph-11, of the DPCO, 1995.
8. We have given our earnest consideration to the rival submissions made during the course of hearing of these writ petitions. We have perused the pleadings and as well as the records made available pursuant to the rule nisi issued by the Court. The report submitted by the Bureau of Industrial Costs and Prices, Ministry of India, New Delhi, dealing with the fixation of price of bulk drug 'Norfloxacin' is self-explanatory. The Sub-Committee of the DPRC at its 21st meeting held on 7.9.1995 recommended the prices of the formulations based on the price of 'Norfloxacin' drug at Rs. 1976.15 per kilogram taking into consideration the weighted average import price during October 1994 to March 1995 of Rs. 1300.10 per kilogram. It specifically refers to the un-audited data in Form I furnished by the writ petitioner for the period from 1.4.1994 to 31.10.1994 in May, 1995. Since the data/information in Form I was not forthcoming from various manufacturers, including the writ petitioner, it was decided to issue questionnaire to all the manufacturers, including the writ petitioner, in order to take in-depth cost-cum-technical study. The questionnaires were sent on 18.5.1995 and several reminders were issued.
9. That a team of Costing and Technical Officers was sent to Hyderabad in April, 1996 to make an attempt to collect data/information from the leading manufacturers, like the petitioner. The visit was futile as none of the manufacturers furnished technical data despite persistent request. They further requested that till the department takes a decision on their report, price fixation exercise should be kept in abeyance. During the visit, some cost data was furnished by Dr. Reddy's Laboratories Limited, but the company did not furnish technical details. (Emphasis of ours). It is under those circumstances, the Bureau of Industrial Costs and Prices proceeded to estimate the actual cost of production/sales of 'Norfloxacin'. There is a clear and categorical finding in the report that the details submitted in Form I do not contain all the data that the manufacturers are required to furnish in response to the questionnaire. The Bureau felt that it would be difficult to work out fair cost estimates. That keeping in view various aspects and also the fact that the drug being on OGL, landed costs of imports would act as a ceiling for domestic manufacturers, the Bureau recommended that a price of Rs. 2162/- per kilogram (being the landed costs on imports corresponding to the cif rate of Rs. 1497.35 per kilogram) for the bulk drug 'Norfloxacin' should be notified for the industry.
10. Sri S. Ravi made an attempt to contend that the Annexure I appended to the very report discloses that it had received the information as desired in Form I in May 1995, but had not taken the same into consideration. This submission was based upon an entry' made in remarks column in the Annexure I to the report. The submission is totally untenable for the simple reason that the Bureau found that Form I furnished by the writ petitioner does not contain all the data that the manufacturer is required to furnish in response to the questionnaire.
11. In the counter-affidavit filed by the respondents, it is stated in clear and categorical terms that the petitioner failed to respond to the questionnaire and had not furnished to the Cost-cum-Technical Study Team any technical data thereby leaving no scope to consider its representation at all. It was also stated that the petitioner itself is not clear about the price of bulk drug while it has maintained at one stage that the cost of bulk drug of 'Norfloxacin' as Rs. 5789.60 per kilogram and the selling price as Rs. 6257.98 per kilogram and subsequently as Rs. 4919/- per kilogram based on its cost data while no such data in conformity with the DPCO, 1995 was furnished at any time. We find no reason to reject the averments made in the counter-affidavit filed by the respondents. It is under those circumstances, the Government having left with no other option proceeded to place reliance on Paragraph-11 of the DPCO, 1995 and accordingly fixed the price.
12. The averments made in the counter-affidavit are in complete conformity with the records made available for our perusal. The correspondence between the respondents and the various manufacturers, including the petitioner, reveals that while most of them did not bother even to respond to the questionnaire of the Bureau of Industrial Costs and Prices, the petitioner and few others have submitted some information in Form I, not the complete technical data as is required for the purpose of fixing the price. The record also reveals that none of the manufacturers, including the petitioner, furnished data on the pretext that the representation for exclusion of the bulk drug was pending with the Department of BICP and till final decision, the price decision exercise should be kept in abeyance. That at the most the petitioner furnished the costing data but no technical details were furnished to the BICP.
Whether the decision is ultra vires?
13. The only question that falls for consideration is whether the Central Government could have invoked its power under Paragraph-11 of the DPCO, 1995 and fix the price in respect of the bulk drug and as well as the formulation on the information available with it?
14. Paragraph-11 of the DPCO, 1995 reads as under:
"Fixation of price under certain circumstances:--Where any manufacturer, importer of a bulk drug or formulation fails to submit the application for price fixation or revision, as the case may be, or to furnish information as required under this Order, within the time specified therein, the Government may, on the basis of such information as may be available with it, by order fix a price in respect of such bulk drug or formulation as the case may be."
15. A plain reading of Paragraph-11 of the DPCO, 1995 would reveal in clear and categorical terms that wherever a manufacturer or importer of a bulk drug or formulation either fails to submit application for price fixation or fails to furnish information as required under the DPCO within the time specified, the Government is entitled to fix the price in respect of such bulk drug or formulation on the basis of information available with it. In our considered opinion, whenever the Central Government is acting under Paragraph-11 of the DPCO, it is not bound to take the formula provided for under sub-paragraph (2) of Paragraph-3 of the DPCO. The enquiry contemplated under Paragraph-3 is required to be made for the purposes of fixing maximum sale price of bulk drugs on the basis of the information and additional information that may be provided by the manufacturer. The manufacturer is duty bound and under obligation to permit the team appointed by the Government for inspection of their manufacturing premises for verification through on the spot study of manufacturing processes facilities and records thereof. In the case on hand, the petitioner did not cooperate enabling the team to verify and study manufacturing processes and peruse the record. Some data furnished by the petitioner cannot be equated to the complete particulars required to be furnished in Form I by the manufacturer. The factors as provided in sub-paragraph (2) of Paragraph-3 of the DPCO are required to be taken into consideration only when the Government is acting under Paragraph-3(1) of the DPCO to fix the maximum sale price of bulk drugs specified in the First Schedule. Those parameters are not required to be taken into consideration in the absence of the information required to be furnished by the manufacturer and when the Central Government proceeds to fix the price under Paragraph-11 based on such information as may be available with it. The power under Paragraph-11 is available both for the purposes of fixation of price in respect of bulk drug or formulation thereof. In our considered opinion, Paragraph-3 and as well as Paragraph-7 of the DPCO shall have no application when the Central Government exercises its power under Paragraph-11 of the DPCO. That Paragraph-11 is special in its nature and confers power of fixation of price under certain circumstances. Those circumstances under which the Central Government is entitled to act are; (i) lack of information, and (ii) for failure to submit the application for price fixation or furnish information as required under the DPCO by the manufacturers. This is a clear case where the petitioner/manufacturer failed to furnish information as required in spite of repeated reminders by the Central Government. It is a clear case where the petitioner without any reason not only failed to furnish the required particulars but also did not facilitate the inspection team to verify the manufacture process by way of a spot study and did not co-operate with the team to inspect the records.
16. We are reminded of the observations made by Justice O. Chinnappa Reddy in Union of India v. Cynamide India Ltd., AIR 1987 SC 1802, that:
"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 Article 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'."
17. Section 3(2)(C) of the Essential Commodities Act, 1955 enables the Central Government, to make an order providing for controlling the price at which an essential commodity may be brought or sold. It is in pursuance of the power granted to the Central Government by Section 3 of the Essential Commodities Act, 1955 the Central Government made the Drugs (Prices Control) Order, 1995. A fair reading of the whole of the DPCO makes it abundantly clear that the said DPCO has been made with a view to regulate equitable distribution and increasing supplies of bulk drug price specified and with a view to make it available at a fair price. The DPCO imposes obligation on every manufacturer to furnish information and indicate the details of the cost of each of the such bulk drug. They are under obligation to furnish the details even in relation to non-scheduled bulk drugs. The Central Government is conferred with the power to fix ceiling price to the scheduled formulations and to fix retail price for scheduled formulations. Public interest is the paramount consideration whenever the Central Government exercises its power under the DPCO. Each of the paragraphs under the DPCO should receive construction at our hands, which advances the purposes for which the DPCO has been promulgated.
18. We have no hesitation whatsoever to agree and uphold the plea taken by the Central Government that the respondents have kept in view the interest of the majority of poor patients while taking its decision as the drug is mainly used to fight bacterial infections widely prevalent amongst the weaker sections of the society in this country. Not that the Government ignored the legitimate interest of the manufacturer. The drug is considered to be an active agent against urinary tract and general infections administered in the form of tablets and liquid orals.
19. As has been rightly contended by the respondents, price fixation of 'Norfloxacin' drug, including formulation is a continuing process and it is open to the petitioner to seek revision by furnishing information in Form I even after the commencement of the production and price fixation by the Central Government.
20. We do not find any merit in the submission made by the learned Counsel for the petitioner that the Central Government did not take the relevant factors into consideration and therefore the decision-making process is vitiated by non-application of mind. The report of the BICP referred to hereinabove, records and the averments made in the counter-affidavit filed by the Central Government reveal that only the relevant factors have been taken into consideration by the Central Government in fixing the price. In absence of the information and particulars that were required to be furnished by the petitioner, the BICP made its recommendations to fix the price of Rs. 2162/- per kilogram (being the landed cost of imports corresponding to cif rate of Rs. 1490.35 per kilogram). The Bureau had noticed that the import of the drug is allowed on OGL and about 17 metric tones of drug was imported into the country during 1994-95 at an average cif price of Rs. 1246.41 per kilogram and during the first nine months of 1995-96 it was Rs. 1485.64 per kilogram. The cif price during the third quarter of 1995-96 was Rs. 1495.35 per kilogram. On what basis can it be contended that this is not the relevant factor taken into consideration for the purpose of fixation of the price by the Central Government? In the absence of the information and the technical data furnished by the petitioner/ manufacturer in spite of repeated efforts by the Central Government, there was no option before the Central Government except to invoke its power under Paragraph-11 of the DPCO and fix the price on the basis of the information available with it. The decision cannot be characterized as an arbitrary decision. The decision, in our considered opinion, is not vitiated for any reason, whatsoever, requiring our interference in exercise of jurisdiction under Article 226 of the Constitution of India. Public interest parameters have been kept in view by the Central Government while fixing the price of the bulk drug as well as the formulations. The declared objective being regulation and equitable distribution and increase in supply of the specified bulk drugs and make them available at fair price to the consumers also have been kept in view.
21. In Secy., Ministry of Chemicals and Fertilizers v. Cipla Ltd., , it is observed:
"It is axiomatic that the contents of a policy document cannot be read and interpreted as statutory provisions. Too much of legalism cannot be imported in understanding the scope and meaning of the clauses contained in the policy formulations."
22. The jurisdictional facts are not pleaded by the writ petitioner in order to test and scrutinize various contentions advanced for and on behalf of the petitioners. In the absence of the required particulars in the pleadings, we are required only to test and scrutinize the averments made in the affidavit filed in support of the writ petition in order to decide as to whether the criteria adopted by the Central Government in fixing the price is vitiated for any reason. There is no specific plea taken as such in the writ petition that the Central Government could not have invoked its power under Paragraph-11 of the DPCO and fix the price for the bulk drug and as well as formulations. The plea of non-application of mind is invented and cannot be accepted.
23. In the result, we find no merit in these writ petitions. The writ petitions are accordingly dismissed with costs. Consequently, the interim order initially granted shall stand vacated. This order, however, shall not preclude the petitioners to seek revision or review by furnishing due information since price fixation of the bulk drug and as well as formulation is a continuous process.