Galaxo Smithkline Pharma Ltd vs Uoi & Ors on 15 November, 2022

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Delhi High Court - Orders

Galaxo Smithkline Pharma Ltd vs Uoi & Ors on 15 November, 2022

1. This petition under Article 226 of the Constitution of India assails an order of provisional demand dated 5th October 2004 and an order of final demand dated 2nd December 2004 issued to the petitioner by the Ministry of Chemicals and Fertilizers, Govt of India, calling on the petitioner to pay a demand of ₹ 5,59,32,906/- under Section 13 of the Drugs (Prices Control) Order 1995 (the DPCO 1995).

Signature Not Verified Digitally Signed WP (C) 39/2005 & WP (C) 1527/2005 Page 1 of 7 By:SUNIL SINGH NEGI Signing Date:17.11.2022 14:24:04

2. The demand was predicted on the finding that the petitioner had, during the period March 2002 till August 2003, sold Ventorlin Inhaler (Salbutamol IP, 100 mcg) at prices higher than those notified under the DPCO, 1995.

3. Additionally, the demand calls upon the petitioner to pay interest on the demanded amount.

4. Learned Counsel for the petitioner challenges the impugned demand on three grounds.

5. The first is that the Notification dated 16th November 1999, which had allegedly been violated by the petitioner, was struck down by the High Court of Bombay in its judgment dated 31st August 2001 in a batch of petitions headed by WP(C) 1749/1999 (Cipla v. U. O. I. 1).

6. The charge recovered by the petitioner on sale of Ventolin Inhalers was, till the striking down of the aforesaid Notification dated 16th November 1999, in accordance with the notification.

7. Once the notification had been struck down, the petitioner, w.e.f. March 2002, commenced charging a higher price for sale of Ventolin Inhalers.

8. This, therefore, submits learned Counsel, could not be said to be in violation of the law and could not, in any event, justify a demand under Section 7A of the Essential Commodities Act, 1958 (the EC 1 2001 SCC OnLine Bom 683 Signature Not Verified Digitally Signed WP (C) 39/2005 & WP (C) 1527/2005 Page 2 of 7 By:SUNIL SINGH NEGI Signing Date:17.11.2022 14:24:04 Act).

9. The Union of India carried the judgment of the Bombay High Court in Cipla Ltd.1 to the Supreme Court. Leave was granted, in the SLP of the Union of India on 3rd July 2002, but no stay of operation of the judgment of the High Court of Bombay was granted. Ultimately, vide judgment dated 1st August 2003 2, the Supreme Court set aside the judgment of the High Court of Bombay and remanded the matter to the High Court for de novo consideration.

10. With effect from the date of passing of the aforesaid judgment of the Supreme Court, the petitioner again started charging, on sales of Ventolin Inhalers, on the basis of the DPCO, 1995. As such, there was never any intent, on the part of the petitioner, to flout the law.

11. The Supreme Court had not, while setting aside the judgment of the High Court of Bombay, made its judgment apply retrospectively. Nor could Section 7A of the EC Act be so read as to justify a demand, against the petitioner, on the sales effected by it during the period the notification dated 16th November 1999 stood stayed by the High Court of Bombay.

12. The second ground on which Mr. Rana, learned Counsel for the petitioner seeks to challenge the impugned demand is predicated on the following para from the judgment of a Division Bench of High Court of Allahabad in M/s TC Healthcare Pvt. Ltd. v. Union of India 3.

Secretary, Ministry of Chemicals and Fertilizers v. Cipla Ltd, (2003 ) 7 SCC 1 3 2010 SCC OnLine All 834 Signature Not Verified Digitally Signed WP (C) 39/2005 & WP (C) 1527/2005 Page 3 of 7 By:SUNIL SINGH NEGI Signing Date:17.11.2022 14:24:04 "The next submission of the petitioners that maximum retail price is fixed giving trade margin of 16% and the petitioners never received the aforesaid margin. The said amount had never received by it, it cannot be recovered as overcharge amount. Under paragraph 13 the manufacturer is liable to deposit the amount accrued due to charging of price higher than those fixed. The word "accrue" has been defined in Webster Comprehensive Dictionary Encyclopedic Edition in following manner : -

"ac-crue v.i. -crued, cru-ing 1 To come as a natural result or increment, as by growth : with to. 2 To arise as an addition, accession, or advantage; accumulate, as the interest on money : with from. 3 Law To become established as a permanent right. - n. A loop or false mesh in network which increases the number of meshes in a given row. [< obs. n. accrue an accession"

**** Under paragraph 19 of the DPCO 1995 the manufacturer is obliged to sell a retailer at a price equal to the retail price as specified by an order or notified by the Government minus 16% thereof in case of scheduled drug. For example, retail price of a drug is Rs. 100/-, the manufacturer is obliged to sell the drug to retailer for an amount of Rs. 84/- as 16% has been treated to be trade margin. The amount of 16% which is statutorily provided as trade margin for a retailer cannot be said to be accrued to the manufacturer. Thus while computing the overcharge amount the allowance of amount of 16% as provided under sub-paragraph (1) of Paragraph 19 has to be given to the manufacturer. The amount which has never accrued to the manufacturer cannot be recovered as overcharge amount. Thus the submission of the petitioners that while calculating the overcharge amount 16% has to be deducted, which had never accrued to the manufacturers, is accepted.

**** In result, both the writ petitions are disposed of with the following directions :

****

(b) Total overcharge amount is required to be reduced by 16% which amount was not accrued to the petitioners."

13. Mr. Rana submits that, as required by the DPCO, he was charging a trade margin from his immediate buyer and that, applying the principles in the afore-extracted passages from the judgment of the High Court of Allahabad in TC Healthcare Pvt. Ltd.3, that trade Signature Not Verified Digitally Signed WP (C) 39/2005 & WP (C) 1527/2005 Page 4 of 7 By:SUNIL SINGH NEGI Signing Date:17.11.2022 14:24:04 margin could not constitute any part of the demand against his client, assuming the demand was at all sustainable.

14. He submits that both T.C. Healthcare and Union of India had carried the judgment of the High Court of Allahabad to the Supreme Court, which dismissed all the appeals vide its decision in TC Healthcare Pvt. Ltd. v. UOI 4, rendered on 15th November 2019. All the appeals were dismissed. The appeals of the Union of India, he submits, were inter alia directed against the afore-extracted passages from the judgment of the High Court of Allahabad in TC Healthcare Pvt. Ltd.3 which, therefore, stand affirmed by the Supreme Court.

15. The third ground on which Mr. Rana seeks to challenge the impugned Notification is with respect to the aspect of interest. In this context, too, he relies on the decision of the High Court of Allahabad in TC Healthcare Pvt. Ltd.3, specifically on the following passage therein:

"Section 7A of the Essential Commodities Act, 1955 contemplates recovery by Government with simple interest on the due amount in case any default is committed in payment by a person liable to pay any amount. The order has been passed in this case by respondent No. 2 directing for deposit of overcharge amount by orders dated 12th September, 2008 and 24th October, 2008. The said orders direct deposit of the said amount within fifteen days from issue of the letter failing which recovery proceedings under the provisions of the Essential Commodities Act, 1955 were to be initiated. The default of the petitioner to pay overcharge amount shall arise after fifteen days from issue of the order. The liability to pay simple interest shall arise after a default is committed as per Section 7A(1). Thus no interest could have been charged prior to issue of the order dated 12th September, 2008 and 24th October, 2008. The orders dated 12th September, 2008 and 24th October, 2008 insofar as it demands respective amount towards interest cannot be sustained"

(2020) 15 SCC 117 Signature Not Verified Digitally Signed WP (C) 39/2005 & WP (C) 1527/2005 Page 5 of 7 By:SUNIL SINGH NEGI Signing Date:17.11.2022 14:24:04

16. The Union of India had, in its appeal against the decision of the High Court of Allahabad in TC Healthcare Pvt. Ltd.3. also challenged the afore-extracted passage from the said decision.

17. The dismissal of the Civil Appeals filed by the Union of India by the Supreme Court, therefore, also affirms the principles enunciated in the above paragraphs.

18. The afore-extracted passage from the decision of the High Court of Allahabad, submits Mr. Rana, clearly holds that interests could be charged only from the date when a demand was raised by the respondent. The demand, in the present case, was raised for the first time after the judgment of the Supreme Court in Cipla1. As such, there having been no demand for the prior period, no interest could be charged for the said period.

19. Mr. Rana has also pointed out that against the judgment of the Supreme Court in TC Healthcare Pvt. Ltd4., the Union of India had preferred a review petition which was dismissed on 5th August 2020, against which dismissal, the Union of India went further by way of a curative petition which was also dismissed on 24th August 2022.

20. In view of the aforesaid, Mr. Rana submits that the impugned demands are without jurisdiction and cannot sustain on merits either.

21. Mr. Shukla seeks a day's time in order to meet these submissions and examine the legal position.

Signature Not Verified Digitally Signed WP (C) 39/2005 & WP (C) 1527/2005 Page 6 of 7 By:SUNIL SINGH NEGI Signing Date:17.11.2022 14:24:04

22. Re-notify on 18th November 2022 as part-heard.

C. HARI SHANKAR, J.

NOVEMBER 15, 2022 dsn Signature Not Verified Digitally Signed WP (C) 39/2005 & WP (C) 1527/2005 Page 7 of 7 By:SUNIL SINGH NEGI Signing Date:17.11.2022 14:24:04

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Delhi High Court - Orders