Karnataka High Court
Remidex Pharmaceuticals Private ... vs Union Of India And Another on 29 March, 2000
Equivalent citations: AIR2000KANT288, ILR2000KAR2197, 2000(5)KARLJ189, AIR 2000 KARNATAKA 288, (2000) ILR (KANT) 2197 (2000) 5 KANT LJ 189, (2000) 5 KANT LJ 189
ORDER
1. The petitioners herein challenge the validity of Annexure-C fixation issued by the respondents in exercise of their power conferred under Paragraph 9 of the Drugs (Prices Control) Order, 1995 (hereinafter referred to as the 'DPC Order'), fixing the ceiling price of the medicinal preparations manufactured by them. They allege that the 1st petitioner is an SSI unit manufacturing a capsule named ZEVIT which is a medicinal product containing Vitamin B and zinc. They allege that the impugned notification has been issued without prior notice; that a press release issued by the respondents Annexure-D indicates that the petitioners and another manufacturer alone have been targeted for a discriminatory treatment, that the cost difference in the manufacture of the formulations as explained in Annexure-E has not been borne in mind by the respondents while fixing the price resulting in the manufacturer of whose formulation having higher potency of ingredient being treated equally with manufacturers of formulation of singularly lower level. By the very nature, the formulations manufactured by the petitioners contain numerous ingredients in different and varying strength and contain different additives, excipients, incipient, and other ingredients in some vitamin formulations; certain vitamins are omitted depending upon the therapeutic treatment intended. None of these aspects have been taken note of by the first respondent in the process of price fixation. This is discriminatory in that the respondents have not borne in mind that, in the matter of fixation of ceiling price of multi-ingredient formulations different prices have to be fixed depending on the ingredients of each formulation and cannot be treated equally with other formulations having different ingredients. It is alleged that such treatment would amount to treating dissimilar and non-comparable formulations on the same footing and it is illegal and unjust. It is alleged that Annexure-C has been issued without proper inquiry or application of mind and without ascertaining the cost of production at the petitioner's end. According to the petitioners Annexure-F produced by them demonstrates that the petitioners have been singled out for discriminatory treatment. It is alleged that while making the fixation, the respondents have not followed the requirement of Paragraph 9 of the DPC Order. The exercise of power under Paragraph 10 of the Order can be done only after securing relevant information as contemplated under Paragraphs 7 and 9 of the DPC Order. This has not been done in this case. The petitioners further point out that this mode of fixation will result in the manufacture of irrational Vitamin B Complex with zinc which would be of lower strength. The petitioners submitted a statutory review application Annexure-H seeking disclosure of the materials on which the fixation is made and seeking review of Annexure-C. On the very same day, the first respondent has called upon the petitioner to follow the fixation of the price made as per Annexure-C. The petitioner hence submits that no purpose would be served by pursuing the review remedy. The impugned fixation is an arbitrary and mala fide exercise of power. The impugned notification is challenged on the above grounds.
2. A statement of objection has been filed by the respondent. The contention in brief are as under: That there is no proof that the 1st petitioner is a SSI unit, that the ceiling price with respect to the formulations in question was fixed under the DPC order to bring uniformity with the other comparable products, that as per Schedule V of the Drugs and Cosmetics Act and the Rules made thereunder, limits for daily use of vitamins under the therapeutic category were fixed by the Ministry of Health and Family Welfare Notification No. GSR 930, dated 22-7-1978 and that after the said notification every formulator of Vitamin B combined with other vitamins in the form of any Pharmaceutical dosage form are permitted to use Vitamins in their formulation within the prescribed limits. It is alleged that all the manufacturers of the formulations are bound by the prescribed norms and therapeutic notifications laid down by the Drug and Health authorities. It is further alleged that keeping the above range in mind the price was fixed and that any formulator who used lower limit of the Vitamin in his composition would have made higher profits. But it was pointed out that no formulator is manufacturing and marketing their Vitamin formulations using the higher limit of Vitamins in their therapeutic group. It is also alleged that the prices were worked out noticing the fact that the Companies were changing the range of two or three Vitamins namely Calcium Panthothenate/D-Panthothenate, Vitamin C and Niacinamide. It was noticed that, with respect to other Vitamins such as Vitamin B1, Vitamin B12 and Folic Acid the companies were using higher limits in their formulations. It is alleged that drugs and formulations are produced as per therapeutic norms fixed by the drug authorities. It was also stated that the ceiling price has been fixed after due inquiry and investigation. It is also alleged, relying on Annexure-R3 chart produced by the respondents, that the price fixed by the petitioner as compared to other manufacturer manufacturing with similar composition and formulation is unreasonably high. They also contended relying on the judgment of the Supreme Court in M/s. Shri Sitarain Sugar Company Limited and Another v Union of India and Others, that the price fixation being policy matter and legislative in nature, is not amenable to judicial review by this Hon'ble Court. They reiterated that the fixation of the price in the instant case is within the ambit of Paragraph 10 read with Paragraph 22.7.3 of the New Drug Policy of 1994. The respondents also submit that while the petitioner allege that it is a small-scale industry nevertheless it is charging exorbitantly high price for its products.
3. A detailed rejoinder has been filed by the petitioner denying all the allegations in the statement of objections and pointing out that Annexure-R3 do not reflect the correct facts. It is pointed out that the medicinal products referred to therein either did not contain zinc or Vitamin E unlike the formulation of the 1st petitioner. It is also pointed out that Annexure-R3 refers to tablets whereas the product of the petitioners are capsules. The petitioners have also produced their Small-Scale Industries Registration Annexure-M and a list of industries which use minimum vitamin constituents or ingredients in their formulations.
4. To the rejoinder, again a statement of objections has been filed by the respondents denying the allegations and reiterating their earlier statements. From the facts set out above the question primarily arises as to whether this Court can exercises its extraordinary jurisdiction of judicial review in those matters and interfere with the fixation of the price of medicinal products by the respondents.
5. The fixation of a price of a commodity is generally regarded as in the realm administrative action intended to control the production and sale of the commodity in the market at a reasonable price. The object is to ensure that the manufactured product is available to common man at affordable price. As to what control the Government should exercise in such matters has to be regarded as a policy matter. In such cases, even though, the accent is to restrict the profit margin, maintaining of the quality of the product is also a material consideration. This is particularly so, with respect to essential commodities such as Medicines etc. Leaving the right to the manufacturer to fix the price of their product is regarded as encouraging private enterprises which may cause the products beyond the reach of the common man. If such a free hand in regard to the price fixation is allowed while dealing with such essential commodity as medicines it may cause serious repercussions and it is essential that, in the interest of the Society at large the State intervenes and controls the price structure of essential commodities including Medicine. The economics of a controlled economy as noted by the Supreme Court in Maharashtra Rajya Sahakari Sakkar Kharkhana Sangha Limited v State of Maharashtra , does not operate on demand and supply. Such production, distribution and supply are regulated by the Government and such orders are issued in common interest for the needy and poor. Legality thereof cannot be tested on cost structure of free economy or maximum profit. Nevertheless, even such fixation should satisfy the test of reasonableness which pervades the constitutional scheme in the extent of Article 14 of the Constitution of India. No doubt, from the point of view of public interest the policy of the Government should be to prohibit concentration of economic power to subserve the common good and to ensure that while it encourages the industrial growth such growth be utilised to bring about social and economic justice (vide observations in Union of India v Hindustan Development Corporation).
6. Fixation of price for Medicine and such other commodities involves the need of expertise. It is the reason as to why the 1st respondent has framed legislations such as Drugs (Price Control) Order, 1995 etc. (with which we are immediately concerned) invoking its powers vested in it under the Essential Commodities Act, 1955. To understand the modus operandi set down in this behalf by the 1st respondent we will now familiarize with relevant provisions in this behalf.
7. There are several decisions delineating the scope of judicial review with respect to the exercise of price fixation by the Government Namely, (1) Premier Automobiles Limited and Another v Union of India, (2) Shree Meenakshi Mills Limited v Union of India, (3) Panipat Co-operative Sugar Mills v Union of India, (4) Saraswati Industrial Syndicate Limited v Union of India, (5) M/s. Prag Ice and Oil Mills and Another v Union of India, (6) Shri Sitaram Sugar Company Limited's case, supra, (7) Hindustan Development Corporation's case, supra, (8) Maharashtra Rajya Sahakari Sakkar Kharkhana Sangh Limited's case, supra, (9) Bihar State Electricity Board and Another v M/s. Usha Martin Industries and Another, (10) Paswan Alloys and Casting Private Limited, Meerut v Uttar Pradesh State Electricity Board, (11) Haryana Urban Development Authority and Another v Ranjan Dhamina and Another .
They are a few among the several judgments of the Supreme Court. It can be seen from the perusal of these judgments that the price fixation is essentially a legislative measure but such action should be based on reasonableness and it should keep in mind the purpose for which the power is being exercised. It is settled that the criteria to be adopted in this exercise must be reasonableness. For the purpose of judging whether there was an excess or misuse of power, or an arbitrary exercise of it, the Courts may undertake a judicial review. Demonstration of a reasonable nexus between the matters which are taken into account in exercising the power and the result thereof can be assessed by the Court, not with an object of finding whether the conclusion are correct. AH that the Courts may examine is to ascertain whether the repository of the power have acted in a reasonable manner, avoided any arbitrary conclusion or reached the finding keeping in mind relevant materials to do so. Nevertheless, such fixation being a policy matter any reasonable error cannot furnish a ground for challenge and would not provide a ground for judicial scrutiny as well. Certainly it does not mean that Government can fix any arbitrary price or price be fixed on totally irrelevant consideration or such that it does not secure a reasonable consideration of all circumstances. The Government cannot also act on preconceived decision taken by subordinate authorities. Such decision taken abdicating its power would be totally ultra vires. The essential requirement of invoking of jurisdiction of this Court would be the existence of materials to show that such fixation is ultra vires of the power conferred on the first respondent. The Court can always examine whether the basis adopted by the competent authority is reasonable or whether it has acted ultra vires of the powers. In this behalf we may notice the following observations of Supreme Court. In Saraswati Industrial Syndicate Limited's case, supra, where it is stated thus:
"13. The petitioners did not challenge the price fixation on the ground that a quasi-judicial procedure had to be adopted before prices are fixed even if such price fixation affects, as it must, each factory. Price fixation is more in the nature of a legislative measure even though it may be based upon objective criteria found in a report or other material. It could not, therefore, give rise to a complaint that a rule of natural justice has not been followed in fixing the price. Nevertheless, the criterion adopted must be reasonable. Reasonableness, for purposes of judging whether there was an "excess of power" or an "arbitrary" exercise of it, is really the demonstration of a reasonable nexus between the matters which are taken into account in exercising a power and the purposes of exercise of that power. This was made clear by this Court in the two cases cited on behalf of the appellants Shree Meenakshi Mills Limited's case, supra, Panipat Co-operative Sugar Mills case, supra.
14. Shree Meenakshi Mills case, supra, related to price fixation under the provisions of Cotton Textile (Control) Order, 1948. There, this Court observed inter alia, that the case of Premier Automobiles Limited, supra, "does not consider that concept of fair prices varies with circumstances in which and the purposes for which the price control is sought to be imposed", and, it indicated that the decision in that case was based on a "special agreement" involved there. The purposes of the Essential Commodities Act were thus explained at page 490 of Sree Menakshi Mills Limited's case, supra.
"The question of fair price to the consumer with reference to the dominant object and purpose of the legislation claiming equitable distribution and availability at fair price is completely lost sight of if profit and the producer's return are kept in the forefront. The maintenance or increase of supplies of the commodity or the equitable distribution and availability at fair prices are the fundamental purposes of the Act. If the prices of yarn or cloth are fixed in such a way to enable the manufacturer or producer to recover his cost of production and secure a reasonable margin of profit, no aspect of infringement of a fundamental right can be said to arise".
It was then said (at page 490) of Sree Meenakshi Mills Limited's case, supra:
"In determining the reasonableness of a restriction imposed by law in the field of industry, trade or commerce, it has to be remembered that the mere fact that some of those who are engaged in these are alleging loss after the imposition of law will not render the law unreasonable. By its very nature, industry or trade or commerce goes through periods of prosperity and adversity on account of economic and sometimes social and political factors. In a largely free economy when controls have to be introduced to ensure availability of consumer goods like food stuff, cloth and the like at fair price it is an impracticable proposition to require the Government to go through the exercise like that of a Commission to fix the prices".
"Even these Commissions cannot always make a correct estimate of a price which is fair to all because there are intricacies of the trade of all profit making enterprises which a Commission may not be able to probe".
15. The Panipat Co-operative Sugar Mills case, supra, the price fixation of sugar under the Sugar (Price Determination) Order, 1971, on principles laid down by Tariff Commission and other expert bodies were considered by this Court. In that context it said (at page 875 of Panipat Co-operative Sugar Mills case, supra):
"A unit-wise fixation price as suggested by counsel, and payment on the basis of a price so worked out would mean perpetuating inefficiency and mismanagement, and depriving the partial control policy of the incentives for economy and efficiency inherent in it. We are, therefore, satisfied both on the language of the sub-section, the background in which it was enacted and the mischief the legislature sought to remedy through its working that the true construction is that a fair price has to be determined in respect of the entire produce, ensuring to the industry a reasonable return on the capital employed in the business of manufacturing sugar. But this does not mean that Government can fix any arbitrary price, or a price fixed on extraneous considerations or such that it does not secure a reasonable return on the capital employed in the industry"."
8. Likewise, we may now advert to the observation of Supreme Court in M/s. Prag Ice and Oil Mills case, supra, wherein a critical approach has been made to this question by the Supreme Court. After discussion at length, their Lordships indicated as under:
"34. The cases cited before us on price control relate to the sphere in which the criteria for fixation of prices were indicated either by a statutory provision or by orders made thereunder. In Panipat Co-operative Sugar Mills case, supra, this Court said (SCC page 133):
Two principal questions arise in these appeals: (1) what is the true interpretation of Section 3(3-C); and (2) whether the price of Rs. 124.63 was in accordance with the provisions of Section 3(3-C).
Thus, statutory principles for price fixation were under consideration there. Again, in Shree Meenakshi Mills Limited's case, supra, they were directions given under the Cotton Textiles Control Orders prescribing sales through certain channels. The principles on which the sale prices of textiles were to be fixed, in accordance with relevant rules, were explained by this Court.
35. In Shree Meenakshi Mills case, supra, Ray, C.J., disapproved of the decision of this Court's in Premier Automobiles Limited, supra, in the following words (para 64):
The Premier Automobiles case, supra, decision does not consider that the concept of fair prices varies with circumstances in which and the purposes for which the price control is sought to be imposed. This decision because of the special agreement there does not consider that the fixation of fair price with a view to holding the price line may be stultified by allowing periodic increase in price.
It was also observed there (SCC page 490, para 63):
In Premier Automobiles case, supra, this Court said that the concept of fair price fixed under Section 18-G "takes in all the elements to make it fair for the consumer leaving a reasonable margin of profit to the manufacturing activity". These observations were made on the basis of the agreement of the parties there that irrespective of technical or legal points the Court should base its judgment on examination of correct and rational principles and should direct deviation from the report of the Commission of Inquiry appointed by it with the concurrence of the parties only when it is shown that there has been a departure from the established principles or the conclusions of the Commission are shown to be demonstrably wrong or erroneous.
In other words, that judgment was not to provide a precedent for anything similar to be done by Courts in other case.
36. In Saraswathi Industrial Syndicate Limited's case, supra, the cases mentioned above were discussed by this Court in the context of the Sugar Control Order, 1966, where clause (7) laid down certain matters to be considered in determining fair price. It was held there (SCC page 636, para 13):
Price fixation is more in the nature of a legislative measure even though it may be based upon objective criteria found in a report or other material. It could not, therefore, give rise to a complaint that a rule of natural justice has not been followed in fixing the price. Nevertheless, the criterion adopted must be reasonable.
The guiding factors laid down in clause (7) of the Sugar Control Order, 1966, were held to afford only indicia to help the Government in fixing prices on the lines indicated in the Control Order".
In M/s. Shri Sitaram Sugar Company Limited's case, supra, the Supreme Court stated thus:
"56. The Court has neither the means nor the knowledge to reevaluate the factual basis of the impugned orders. The Court, in exercise of judicial review, is not concerned with the correctness of the findings of fact on the basis of which the orders are made so long as those findings are reasonably supported by evidence. In other words of Justice Frankfurter of the U.S. Supreme Court in Railroad Commission of Texas v Rowan and Nichols Oil Company:
"Nothing in the Constitution warrants a rejection of these expert conclusions. Nor, on the basis of intrinsic skills and equipment, are the Federal Courts qualified to set their independent judgment on such matters against that of the chosen State authorities. .... When we consider the limiting conditions of litigation - the adaptability of the judicial process only to issues definitely circumscribed susceptibility of being judged by the techniques and criteria within the special competence of lawyers -it is clear that the Due Process Clause does not require the feel of the expert to be supplanted by an independent view of Judges on the conflicting testimony and prophecies and impressions of expert witnesses".
This observation is of even greater significance in the absence of a Due Process Clause.
"57. Judicial review is not concerned with matters of economic policy. The Court does not substitute its judgment for that of the legislature or its agents as to matters within the province of either. The Court does not supplant the "feel of the expert" by its own views. When the legislature acts within the sphere of its authority and delegates power to an agent, it may empower the agent to make findings of fact which are conclusive provided such findings satisfy the test of reasonableness. In all such cases, the judicial inquiry is confined to the question whether the findings of fact are reasonably based on evidence and whether such findings are consistent with the loss of the land. As stated by Jagannatha Shetty, J., in M/s. Gupta Sugar Works v State of Uttar Pradesh and Others :
"..... the Court does not act like a Chartered Accountant or acts like an Income-tax Officers. The Court is not concerned with an individual case or any particular problem. The Court only examines whether the price determined was with due regard to considerations provided by the statute. And whether extraneous matters have been excluded from determination".
58. Price fixation is not within the province of the Court, Judicial function in respect of such matters is exhausted when there is found to be a rational basis for the conclusions reached by the concerned authorities. As stated by Justice Cardozo in Mississippi Valley Barge Line Company v United States of America :
"The structure of a rate scheduled calls in peculiar measure for the use of that enlightened judgment which the Commission by training and experience is qualified to form. .... It is not the province of a Court to absorb this function to itself. .... The judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative body" ".
9. The inquiry as stated above is confined to the question whether the finding of fact are reasonably based on materials on record and whether such findings are consistent with the law of the land. The judicial function is completed when they establish there exists rational basis for the conclusion arrived at by the administrative body.
10. To begin with in the instant case we might keep in mind that the 1st respondent has exercised its power under Clause 25 of the Order and has exempted a category of manufacturers from the operation of Clause 8 of the Order relating to the retail price of scheduled formulations it that formulations are not covered by Clause 9 of the Order relating to the fixation of the ceiling price for the scheduled formulations. This exemption has given rise for a serious contention in that, due to the exemption granted, according to the petitioner-manufacturer's like the petitioners are outside the purview of the DCP order, the 1st petitioner being a small-scale industry, but still they alone are targeted for fixation of a price by the impugned notification by invoking Clause 9 of the order in that behalf. But this contention is urged on the misunderstanding of the provisions of the Order. Clause 8 deals with retail price of bulk drug whereas Clause 9 deals with the fixation of ceiling price for scheduled formulations. By adverting to the definition of bulk drug at Clause 2(a) we would notice that these paragraphs operate in two distinct areas. As such the manufacturers of commodities dealt under Clause 8 is different from those who come under the purview of Clause 9.
11. However, in this connection, there still is an incidental aspect. The power to fix the retail price on the scheduled formulations is conferred on the 1st respondent under Paragraph 8 of the Order. Paragraph 9 of the Order deals with the fixation of ceiling price for the scheduled formulation. In exercise of the power under Paragraph 25 of the Order the 1st respondent has issued Annexure-B notification exempting the industries coming within the ambit of the said notification from the operation of Paragraph 8 of the Order relating to the fixation of retail price for the scheduled formulation if such formulation is not covered under Paragraph 9 of the Order and also subject to the conditions made mention of in the notification.
12. What is the effect of the exemption? Exemption under Paragraph 25 of the Order means that the industries covered by exemption notification Annexure-B do not come within the ambit of the Para 8 of the DPC Order. An exemption therefore means freedom from the said paragraph in the DPC Order. When under Annexure-B notification, the industries mentioned therein, is exempted from the operation of Paragraph 8 of the DPC Order, it means no fixation of retail price can be made under Paragraph 8 thereof. Or in other words, the power conferred under Paragraph 8 of the Order cannot be invoked insofar as the industries covered by Annexure-B notification issued under Paragraph 25 of the Order. It means in a case covered by the exemption notification Annexure-B the 1st respondent cannot fix the retail price during the currency of the exemption.
13. Retail price has been defined at Paragraph 2(s) to mean price of a drug fixed in accordance with the provisions of the Order and "includes a ceiling price". By means of this inclusive definition, the meaning of the expression "retail price" stands enlarged. As noticed by the Supreme Court in Regional Director, Employees' State Insurance Corporation v M/s. High Land Coffee Works of P.F.X. Saldanha and Sons and Another, these words must be construed as comprehending, not only such things as they signify, according to their natural import, but also those things which the interpretation clause declares that they shall include. We may also refer to the following paragraph from Commissioner of Income-tax, Andhra Pradesh v Taj Mahal Hotel, Secunderabad:
"6. .... The word "includes" is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the "statute". When it is so used, these words and phrases must be construed as comprehending not only such things as they signify according to their nature and import but also those things which the interpretation clause declares that they shall include".
If therefore by virtue of the definition of retail price it includes ceiling price as well and the power to fix the retail price do not exist insofar as the industries referred to in Annexure-B are concerned, then can the 1st respondent nullify the exemption granted under Paragraph 25 in the disguised exercise of the power under Paragraph 9? By the exercise of the power under Paragraph 9 is not the 1st respondent in reality fixing the retail price as well? Prima facie I am of the view that what the 1st respondent has done by virtue of Annexure-C is the exercise of power under Paragraph 8 with respect to industries covered under Annexure-B exemption. However, in the facts and circumstance of the present case, as to whether Annexure-B covers the petitioner is a different issue and I am not pronouncing on the same at present, as the question had not been argued in that manner. That issue is left open. I will confine the scope of this judgment to other issues urged.
14. The larger issue addressed was whether there has been an arbitrary exercise of its power by the 1st respondent under Paragraph 9 of the Order and whether the fixation is reasonable. Reasonableness and absence of arbitrariness are the hallmarks of every decision making process. Price fixation which is described as a quasi-legislative function, is no exception to this rule. In the facts of the present case the answer to this question is in favour of the petitioners.
15. In this behalf sub-pragraphs (1) to (3) of Paragraph 9 may be adverted to. It reads as under:
"9 (1) Notwithstanding anything contained in this Order, the Government may, from time to time, by notification in the Official Gazette fix the ceiling price of a scheduled formulation in accordance with the formula laid down in Paragraph 7, keeping in view the cost or efficiency, or both, of major manufacturers of such formulations and such price shall operate as the ceiling sale price for all such packs including those sold under generic name and for a manufacturers of such formulations.
(2) The Government may, either on its own motion or on application made to it in this behalf by a manufacturer in Form III or Form IV, as the case may be, after calling for such information as it may consider necessary, by notification in the Official Gazette, fix a revised ceiling price for a scheduled formulation.
(3) With a view to enabling the manufacturers of similar formulations to sell those formulations in pack size different to the pack size for which ceiling price has been notified under the sub-paragraphs (1) and (2), manufacturers shall work out the price for their respective formulation packs in accordance with such norms, as may be notified by the Government, from time to time, and he shall intimate the price of formulation pack, so worked out, to the Government and such formulation packs shall be released for sale only after the expiry of 60 days after such intimation".
16. Sub-paragraph (1) indicate the modus operandi for the fixation of the ceiling price. From the wordings of sub-section (1) this power can be exercised "from time to time" meaning thereby, as and when occasion demands. Such change of circumstance can come into being only when the respondents acquire information in this behalf, which would indicate to mean only when the respondents become aware of the need. Sub-paragraph (3) of Para 9 mentions as to how a revision of the price can be effected; that is either on its own motion or on an application submitted by the manufacturers. It has prescribed the proforma in which such an application for revision has to be submitted. That is, the statute itself indicates as to what are the informations to be furnished by an applicant to enable the 1st respondent to exercise a revision. We may look at the proforma for the revision. We may notice Columns 13 and 14 thereof which are as under:
"13. Break-up of Retail Price:
XXX XXX XXX XXX (a) Material Cost (as per S. No. 14(d)); (b) Conversion cost (as per norms); (c) Packing Material Costs (as per S. No. 15 or as per norms); (d) Packing charges; (e) Ex-factory cost ((a) to (d)); (f) MAPE 100% on (e) above; (g) Excise Duty; (h) Retail Price (R.P.) ((e)+(f)+(g)) Existing Retail Price Approval Letter No. and Date - Copy to be enclosed. 14. Material Cost: (a) Batch size (Nos./Litres/kgs/etc.);
(b) No. of packs that can be theoretically obtained from the batch size as in (a) above;
(c) Material Cost for the batch size as in (a) above".;
17. If these materials are relevant, according to the statute itself, to effect a revision, these material should also to have been held relevant for the 2nd respondent in the matter of initial fixation of price itself. No where in the Statement of Objections filed on behalf of the respondents, have the respondents highlighted that these materials were collected and examined by the 2nd respondent before the fixation of the price and issuance of the consequential Annexure-C order. It means the 2nd respondent had not kept in mind the relevant materials for the decision making process. It has not collected, before fixing the price, the necessary materials required in the decision making process. It has thus kept out of consideration the relevant materials needed to form an opinion at the material stage.
18. We may now advert to Paragraph 7 of the DPC Order. This Paragraph lays down the formulae to be applied for the fixation of the ceiling price. The constituent of the equations are:
MC = representing the Material Cost
CC = Conversion Cost
PM = Cost of the Packing Material
PC = Packing Charges
MAP = Maximum Allowable Post-Manufacturing Expenses
ED = Excise duty
19. A careful perusal of the method of assessing these items would disclose that there should be an active investigation and collection of basic facts from various manufacturers to work out the figures. The MC (Material Cost) cannot be reckoned without assessing the local market price, existing in relation to the manufacturer, in the locality where the manufacturer operates. CC, the conversion cost being fixed again at the established notified rates. PM, the cost of the packing material, is an individualised cost, PC, the packing charges worked out in accordance with established procedures of costing. These four items state that such fixation shall be made as a norm every year by notification. This means, it contemplates a variation every year and a dialogue with the manufacturers or collection of basic rudimentary facts by the repository of the power from the area the manufacturer is situate to ascertain the ingredients, to make at the fixation of the norms. From the very nature, it may vary from up North to deep South and from East and West. An average cannot be struck, unless there being a statutory fixation of the market price of the components as well. Admittedly there is no such fixation. It is not stated anywhere, that either the manufacturers were heard or were given an opportunity to represent with respect to these paradigms in the decision making process. A market survey will not yield or disclose the parameters needed to ascertain the norms to be fixed under these heads with respect to each class of industries. The fifth ingredient i.e., the MAPE is fixed with reference to the cost incurred by the respective manufacturer. Insofar as MAPE is concerned it clearly postulates an inquiry to ascertain the costs incurred by the manufacturer and it is not possible to make any summary fixation.
There is nothing on record to show that such an inquiry has been undertaken by the second respondent before working out the formula in Paragraph 7. This demonstrates that the second respondent has eschewed, relevant materials in the decision making process. The following statement of the respondents would reinforce such a conclusion. The express stand of the respondents in the statement of objection is as under:
"5. The 2nd respondent submits the contention of the petitioner in para 8 of the petition that the impugned order treats the similar and non-comparable manufacturers and formulations on the same footing is hereby denied. It is stated that as per Schedule V of the Drugs and Cosmetics Acts and Rules made thereunder 1945, limits for daily use of vitamins under therapeutic category were fixed by the Ministry of Health and Welfare vide Notification No. GSR 930, dated 22-7-1978. After said notification every formulator of Vitamin B complex combined with other vitamins in the form of any Pharmaceutical dosage form are permitted to use vitamins in their formulation within the limits".
This statement means, the ingredients of the formula made mention of in Paragraph 7 would have been tailor made with reference to the prescription of the Ministry of Health referred to above.
20. This also leads to yet another startling fact; the above averment discloses that the Ministry has rationed the quantity of Vitamins an individual may consume therapeutically. To put it differently, even if a Physician prescribes higher dosage of medicine, the officials in the Ministry have prescribed as to what quantity the person may consume a day. The competency of these officials to trench upon the field occupied by medical men and to prescribe the medicinal requirements of an individual is not comprehensible. At least, this area should have been left to the experts in the field to decide and certainly the official from the Ministry of Health and Welfare should have spared the medical profession. If this is the preconceived notion with which the price fixation exercise has been undertaken by the first respondent there can be no doubt that all the ingredients referred to in Paragraph 7 of the DPC Order would have been assessed only with reference to the notification of the Health Ministry referred to above. That means, there has not been any independent application of the mind by the authority concerned while issuing Annexure-C. It clearly shows that the decision making process adopted by the 1st respondent is clearly vitiated and arbitrary.
21. Now there is yet another vital aspect. The fixation of the price under Annexure-C has been done basing on the strength of a particular ingredient. This is the specific allegation of the first petitioner. Each formulation has its own combination and price has to be fixed keeping this aspect in mind. All formulations having a particular ingredient cannot be classified and grouped in one class even if any particular ingredient is present in yet another formulation. It may be different due to its strength and other combination. The interaction by the presence or absence of any particular ingredient may produce different therapeutic results. This can be illustrated as under. The notified strength of capsule of Vitamin B complex with Vitamins C, E and zinc (therapeutic) is as under:
"Vitamin B1 4.5 mg to 10 mg Vitamin B2 5 mg to 10 mg Vitamin B6 1.5 mg to 3 mg Vitamin B12 5 meg to 15 meg Niacinamide 45 mg to 60 mg Calcium Pentothenal/D Penthenol 5 mg to 15 mg Vitamin E 15 mg Vitamin C 75 mg to 150 mg Zinc Sulphate Eq.
to Zinc Element
22.5 mg".
This tallies with the ingredients of the formulation of the 1st petitioner (vide Annexure-A). If this is compared with Annexure- G, it can be seen that none of the formulations referred to therein fall within Annexure-C. This demonstrates that Vitamin B complex tablet/capsule can be manufactured with different ingredient and formulations varying from Manufacturer to Manufacturer. Or, to defeat the rigors of Annexure-C, a manufacturer can vary the combination of his formulation, which need not always be in the interest of common man. All the formulations manufactured, though goes by the name Vitamin B capsule, cannot hence be treated alike. There are certain capsules in the market which also go by the description as B complex but which does not contain Vitamin E as in the case of the petitioners formulation or zinc (therapeutic), or Vitamin B1. As such all of them cannot be treated equally on the same basis. Therefore each formulation with different ingredients cannot be treated as like the formulation manufactured by the petitioner. One has to keep in mind these nice distinctions as well while undertaking price fixation process. Non-consideration of these aspects indicates, a case of non-application of mind to relevant materials, while at the same time being influenced by an irrelevant considerations in the decision making process.
22. Under the Drug (Price Control) Order, 1995, the 2nd respondent function as an expert body constituted for the price fixation process. The petitioners therefore legitimately expect a professional adjudication from the said body. A professional body cannot act in a casual manner while discharging the duties entrusted to it in a professional capacity.
23. I will now deal with the question of justiciability of the issues raised by Mr. N.R. Bhaskar, learned Central Government Pleader. He urged that the issues raised by the petitioners in this writ petition cannot be examined in the present proceedings. He relies on the decision of the Supreme Court judgments referred to supra to substantiate his contention.
24. The question now raised by the petitioners in this writ petition is not in regard to the power or competency of the first respondent to fix the price. Nor does it challenge the conclusion arrived at. After the law laid down by the Supreme Court, no one would urge so in this behalf as well. The challenge relates to the manner of the exercise of that power. The existence of the power is beyond the pale of the challenge from the Court while the challenge can relate to the manner of exercise of that power in question. It is alleged that the power has been exercised arbitrarily. The judicial review is not attempted to be converted into and disguised as a merit review. The decision arrived at, is not challenged but the investigation is, has the authorities concerned applied the correct parameters in the decision making process and whether the decision has been arrived at keeping in mind the relevant considerations and eschewing irrelevant considerations. The contention is that, when the respondents have chosen an incorrect and arbitrary decision making process, then the decision itself is rendered arbitrary and unreasonable. It is demonstrated here that there has been a failure by the 2nd respondent to conform to the requirement of keeping abreast with relevant materials in the decision making process. The judicial review is not reviewing the economic policy of the 1st respondent. If the 2nd respondent has not adverted to the relevant and material factors while making the decision, but has been swayed and influenced by inconsequential considerations then, the decision would be declared as vitiated and arbitrary. If so, clearly the impugned fixation is arbitrary and do not conform to reason. As such, it violates Article 14 of the Constitution of India.
25. The compliant is that the repository of the power to make the price fixation has acted unreasonably and without addressing itself to relevant considerations. A competent authority has been constituted to decide a technical aspect. Such an authority is expected to act professionally. A pedestrian approach in such cases ignoring relevant materials to be applied in the decision making process thus displaying professional inexpertise demonstrates arbitrariness in the exercise of the power by the authority. Such ostensible decision making process is inherently vitiated and verges on legal mala fides.
26. The second respondent is the statutorily constituted expert body in the matter of price fixation. The statute has wrapped the second respondent's action in a cloak of presumed expertise and therefore it is presumed to act in these areas utilising its past experience, professional skills and accumulated insights which, has conferred on the agency a special skill in the decision making process. But, once it is demonstrated that there is arbitrariness or that the agency has failed to display the professional skill it is assumed to possess, then it is an area where judicial review is permissible.
27. The result of this exercise is that Annexure-C is not sustainable. The same is quashed. As the petitioners alone have complained to the fixation, the relief is confined to the petitioners. No costs.