Bombay High Court
Indian Drugs Manufacturers ... vs Union Of India on 22 December, 2011
Author: R.M. Savant
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.
::: Downloaded on - 09/06/2013 18:01:45 ::: KPP -3- WP No. 2368 of 19962. 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:
::: Downloaded on - 09/06/2013 18:01:45 ::: KPP -4- WP No. 2368 of 19964. 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.
::: Downloaded on - 09/06/2013 18:01:45 ::: KPP -5- WP No. 2368 of 19965. 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: 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.
::: Downloaded on - 09/06/2013 18:01:45 ::: KPP -8- WP No. 2368 of 199610. 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: 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, ::: Downloaded on - 09/06/2013 18:01:45 ::: KPP -12- WP No. 2368 of 1996 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: KPP -13- WP No. 2368 of 1996 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: KPP -14- WP No. 2368 of 1996 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: KPP -15- WP No. 2368 of 1996 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: KPP -16- WP No. 2368 of 1996 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.
::: Downloaded on - 09/06/2013 18:01:45 ::: KPP -17- WP No. 2368 of 199613.11 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: KPP -18- WP No. 2368 of 1996 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: 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.
::: Downloaded on - 09/06/2013 18:01:45 ::: KPP -20- WP No. 2368 of 199614.2 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: 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.
::: Downloaded on - 09/06/2013 18:01:45 ::: 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 following formula, namely:
10.R.P. = (M.C. + C.C. + P.M. + P.C.) x [ 1 + MU ] +ED [ 100] Where--::: Downloaded on - 09/06/2013 18:01:45 ::: 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-
::: Downloaded on - 09/06/2013 18:01:45 ::: 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, ::: Downloaded on - 09/06/2013 18:01:45 ::: 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, ::: Downloaded on - 09/06/2013 18:01:45 ::: 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: 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 ::: Downloaded on - 09/06/2013 18:01:45 ::: 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.
::: Downloaded on - 09/06/2013 18:01:45 ::: KPP -34- WP No. 2368 of 199620. 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.
::: Downloaded on - 09/06/2013 18:01:46 ::: KPP -35- WP No. 2368 of 199622. 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.
::: Downloaded on - 09/06/2013 18:01:46 ::: KPP -36- WP No. 2368 of 1996In 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).
::: Downloaded on - 09/06/2013 18:01:46 ::: KPP -37- WP No. 2368 of 1996In 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 ::: Downloaded on - 09/06/2013 18:01:46 ::: 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 ::: Downloaded on - 09/06/2013 18:01:46 ::: 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 ::: Downloaded on - 09/06/2013 18:01:46 ::: 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 ::: Downloaded on - 09/06/2013 18:01:46 ::: 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 ::: Downloaded on - 09/06/2013 18:01:46 ::: 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.
::: Downloaded on - 09/06/2013 18:01:46 ::: KPP -43- WP No. 2368 of 199628. 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 ::: Downloaded on - 09/06/2013 18:01:46 ::: 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 ::: Downloaded on - 09/06/2013 18:01:46 ::: 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 ::: Downloaded on - 09/06/2013 18:01:46 ::: 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 ::: Downloaded on - 09/06/2013 18:01:46 ::: 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 ::: Downloaded on - 09/06/2013 18:01:46 ::: 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 ::: Downloaded on - 09/06/2013 18:01:46 ::: 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, ::: Downloaded on - 09/06/2013 18:01:46 ::: 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 ::: Downloaded on - 09/06/2013 18:01:46 ::: 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, ::: Downloaded on - 09/06/2013 18:01:46 ::: 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 ::: Downloaded on - 09/06/2013 18:01:46 ::: 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.
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