FULL FORD INDIAN LTD Vs. UNION OF INDIA

JUDGEMENT

(1.) THE two writ petitions, being inter-linked and inter-connected, were heard together and are disposed of by a common order. WP (C) No. 1095/1985 was preferred with the prayer for declaring paragraph 7 of the Drug (Prices Control) Order, 1979 (for short ,,DPCO, 1979) as ultra vires Articles 14 and 300A of the Constitution of India and to issue a writ of certiorari for quashing the impugned order dated 1st February, 1985 and further to prohibit the respondents from initiating any action against the petitioner in implementation of the said impugned order and to pass appropriate orders as may be deemed fit and proper in the facts of the case.

(2.) IN the said petition, it has been stated that the petitioner No.1 is the company and the petitioner No.2 is the Director and the company carries on the business of manufacture, production and sale of drugs and pharmaceuticals including the production, manufacture and sale of various formulations containing the bulk drug Gentamycin Sulphate. The respondent No.2, the Director (Drugs), Government of INdia in the Ministry of Chemicals and Fertilizers who has the authority to exercise the power under the provisions of the Drugs and Cosmetics Act, 1940 as also DPCO, 1979, on the basis of paragraph 7(2) of the DPCO, 1979, imposed the demand for a sum of Rs.194.62 lakhs on the petitioners to be paid and deposited in the drug prices equalization account. It was contended that the said order has purportedly been based on account of alleged difference between the price of Gentamycin Sulphate that has been allegedly allowed to the petitioner-company in their retail prices fixed for the sale of the formulations containing the said drug and the actual purchase prices of imported/indigenously manufactured Gentamycin Sulphate paid by the petitioner.

(3.) IT is urged by the petitioner that the price of Rs.61.21 p/gm was fixed as the maximum selling price of imported Gentamycin Sulphate, when imported and distributed into India by the State Chemical and Pharmaceutical Corporation of India (for short ,,SPC) and the said price was fixed having regard to all relevant factors including the data supplied to the Ministry of Petroleum, Chemicals and Fertilizers by SPC itself. Thereafter, by Circular dated 16th January, 1979, the price was revised from Rs.61.21 p/gm. to Rs.35.67 p/gm. The said price was fixed keeping in view the selling price of imported Gentamycin Sulphate, which was imported by SPC. On 2nd April, 1997, the Drugs (Prices Control) Order, 1979 was brought into effect, which repealed the 1970 order in respect to things done or omitted before the repeal of the DPCO, 1979. The said paragraph 7 of the DPCO, 1979 empowers the Central Government to fix a retention price as well as the pooled price for the sale of bulk drugs specified in the first schedule and the second schedule. The said order was applicable to bulk drugs, which were indigenously manufactured and imported. Placing reliance on sub-para (2) of paragraph 7, the respondent No.2 imposed the demand. IT is contended that paragraph 7(2) applied only if the price of the bulk drug had been fixed under paragraph 7(1) or paragraphs 3, 4, 5 or 6. DPCO, 1979, as pleaded, refers to the bulk drug price but in the case at hand, during the relevant period, the price of the bulk drug Gentamycin Sulphate had never been fixed under paragraph 7(1) of the DPCO, 1979. IT is the stand in the petition that the power to raise a demand under paragraph 7(2)(a) was in the alternative to the power under paragraph 7(2)(b) to direct the manufacturer to sell the formulations at prices which were fixed by the government but if the power under paragraph 7(2)(b) was not exercised, then recourse to make a demand under paragraph 7(2)(a) was not permissible. IT was put forth that raising a demand under paragraph 7(2)(a) was discretionary. IT was also urged that the object was to prevent unjust enrichment of the manufacturer and such a demand does come into existence only if the manufacturer had earned a return higher than that which was allowed to him by the 5th Schedule to the DPCO, 1979. But in the case of the petitioner-company, returns were significantly less than allowed and, therefore, if the demand is raised, its return would be further reduced, which is impermissible. In essence, it is put forth by the petitioner that if the demand raised under paragraph 7(2)(a) is sustained, he has to pay the money which belongs to him inasmuch as he had never collected the said amount. IT was also asserted that paragraph 7(2)(a) had no application at all to bulk drugs consumed in the manufacture and formulation for which leader prices were fixed. In this kind of a situation, the formulation price was fixed in generic terms in the entire industry and hence, there was neither any formulation price fixed in respect of a particular manufacturers formulation nor was there any particular price of the bulk drug allowed to him in the price of his formulation. The petitioner- company was not a leader or a major manufacturer of the formulations based on the bulk drug Gentamycin Sulphate and, therefore, the cost of production was to be taken into consideration while fixing the leader price of the formulation in question, which had not been done in the case at hand. IT was asseverated that when a leader price was fixed, a particular manufacturer cannot be heard to complain about the higher cost and on that basis, the price should be available to him and similarly, it was not open to the respondent No.2 to make a claim on a manufacturer on the footing that his production cost was less. Additionally, it is put forth that the demand has to be on consumption/utilization and not on cross- purchases.