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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
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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
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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
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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
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The enquiry contemplated by paragraph 3 of the Drug (Prices Control
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Order is an enquiry of the former character
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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
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Notwithstanding that the price fixation is a legislative activity, the subordinate legislation had taken care here to provide for a review
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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
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It is a curious amalgam of a hearing which occasionally precedes a subordinate legislative activity such as the fixing of municipal rates etc
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that we mentioned earlier and a post-decision hearing after the making of an administrative or quasi-judicial order
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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
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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 well as the consumer public
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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
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In other words, the review if it is fruitful must result in fresh subordinate legislative activity
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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
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It is difficult to give it a label and to fit it into a pigeon-hole, legislative, administrative or quasi-judicial
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Nor is it desirable to seek analogies and look to distant cousins for guidance
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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
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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
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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
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But whatever procedure is adopted, it must be a procedure tuned to the situation
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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
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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
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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 manufacturer' and 'the reasonable return on net worth
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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
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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
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These particulars which he may seek from the Government are mentioned by us only by way of illustration
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He may seek any other relevant information which the Government shall not unreasonably deny
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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
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On the question of the scope of a Review, the learned counsel for the respondents invited our attention to Vrajlal Manilal & Co. v. Union of India & Anr., [1964] 7 SCR 97 1964 Indlaw SC 194; Shivaji Nathubhai v. Union of India & Ors., [1960] 2 SCR 775 1960 Indlaw SC 430; Maneka Gandhi, [1978] 2 SCR 621 1978 Indlaw SC 212; Swadeshi Cotton Mills, [1981] 2 SCR 533 1981 Indlaw SC 349; and Liberty Oil Mills
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1984] 3 SCR 676 1984 Indlaw SC 326
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We are afraid none of these cases is of any assistance to the correspondence since the court was not concerned in any of those cases with a review of subordinate legislation by the subordinate legislating body
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In Vrajlal Manilal & Co. v. Union of India & Anr. 1964 Indlaw SC 194 (supra) the court held that the Union of India when disposing of an application for review under Rule 59 of the Mines Concession Rules functioned as a quasi-judicial authority and was bound to observe the principles of natural justice
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The decision rendered without disclosing the report of the State Government and without affording reasonable opportunity to the appellants to present their case was contrary to natural justice was therefore, void
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In ShivaIi Nathubhai v. Union of India & Ors.,1960 Indlaw SC 430 (supra) it was decided by the court that the power of review granted to the Central Government under Rule 54 of the Mineral Concession Rules required the authority to act judicially and its decision would be a quasi-judicial act and the fact that Rule 54 gave power to the Central Government to pass such order as it may deem 'just and proper' did not negative the duty to act judicially
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In Maneka Gandhi's case where Bhagwati, J. while expounding on natural justice pointed out that in appropriate cases where a pre-decisional hearing was impossible, there must atleast be a post-decisional hearing so as to meet the requirement of the rule audi alteram partem
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In Swadeshi Cotton Mills, it was observed that in cases where owing to the compulsion of the fact situation or the necessity of taking speedy action, no pre-decisional hearing is given but the action is followed soon by a full post-decisional hearing to the person affected, there is in reality no exclusion of the audi alteram partem rule
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It is no adaptation of the rule to meet the situational urgency
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In Liberty Oil Mills v. Union of India 1984 Indlaw SC 326, (supra) the question arose whether clause 8B of the Import Control Order which empowered the Central Government or the Chief Controller to keep in abeyance applications for licences or allotment of imported goods where any investigation is pending into an imported goods where any investigation is pending into an allegation mentioned in cl
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8 excluded the application of the principles of natural justice
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The court pointed out that it would be impermissible to interpret a statutory instrument to exclude natural justice unless the language of the instrument left no option to the court
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As we said, these cases have no application to a review of subordinate legislation by the subordinate legislating body at the instance of a party
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We mentioned that the price fixed by the Government may be questioned on the ground that the considerations stipulated by the order as relevant were not taken into account
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It may also be questioned on any ground on which a subordinate legislation may be questioned, such as, being contrary to constitutional or other statutory provisions
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It may be questioned on the ground of a denial of the right guaranteed by Art
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14 if it is arbitrary, that is, if either the guidelines prescribed for the determination are arbitrary or if, even though the guidelines are not arbitrary, the guidelines are worked in an arbitrary fashion
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There is no question before us that paragraph 3 prescribes any arbitrary guideline
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It was, however, submitted that the guidelines were not adhered to and that facts and figures were arbitrarily assumed
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We do not propose to delve into the question whether there has been any such arbitrary assumption of facts and figures
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We think that if there is any grievance on that score, the proper thing for the manufacturers to do is bring it to the notice of the Government in their applications for review
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The learned counsel argued that they were unable to bring these facts to the notice of the Government as they were not furnished the basis on which the prices were fixed
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On the other hand, it has been pointed out in the counter-affidavits filed on behalf of the Government that all necessary and required information was furnished in the course of the hearing of the review applications and
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there was no justification for the grievance that particulars were not furnished
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We are satisfied that the procedure followed by the Government in furnishing the requisite particulars at the time of the hearing of the review applications is sufficient compliance with the demands of fair play in the case of the class of persons claiming to be affected by the fixation of maximum price under the Drugs (prices Control) Order
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As already stated by us, manufacturers of bulk drugs who claim to be affected by the Drugs (prices Control
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Order, belong to a class of persons who are well and fully informed of every intricate detail and particular which is required to be taken into account in determining the price
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In most cases, they are the sale manufacturers of the bulk drug and even if they are not the sole manufacturers, they belong to the very select few who manufacture the bulk drug
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It is impossible to conceive that they cannot sit across the table and discuss item by item with the reviewing authority unless they are furnished in advance full details and particulars
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The affidavits filed on behalf of the Union of India show that the procedure which is adopted in hearing the review applications is to discuss across the table the various items that have been taken into account
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We do not consider that there is anything unfair in the procedure adopted by the Government
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If necessary it is always open to the manufacturers to seek a short adjournment of the hearing of the review application to enable them to muster more facts and figures on their side
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Indeed we find that the hearing given to the manufacturers is often protected
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As we said we do not propose to examine this question as we do not want to constitute ourselves into a court of appeal over the Government in the matter of price fixation
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he learned counsel argued that there were several patent errors which came to light during the course of the hearing in the High Court
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He said that obsolete quantitative usages had been taken into consideration, proximate cost data had been ignored and the data relating to the year ending November, 1976 had been adopted as the basis
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It was submitted that there were errors in totalling, errors in the calculation of prices of utilities, errors in the calculation of net-worth and many other similar errors
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As we pointed out earlier, these are all matters which should legitimately be raised in the review application, if there is any substance in them
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These are not matters for investigation in a petition under Art
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226 of the Constitution or under Art
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32 of the Constitution
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Despite the pressing invitation of Shri Diwan to go into facts and figures and his elaborate submissions based on facts and figures, we have carefully and studiously refrained from making any reference to such facts and figures as we consider it outside our province to do so and we do not want to set any precedent as was supposed to have been done in Premier Automobiles though it was not so done and, therefore, needed explanation in later cases
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One of the submissions of Shri Diwan was that in calculating "net-worth" the cost of new works in progress and the amount invested outside the business were excluded from 'free reserves' and that such exclusion could not be justified on any known principle of accountancy
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We think that the question has to be decided with reference to the definition of 'free reserve' in paragraph 2(g) of the Control Order and not on any assumed principle of accountancy
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This is also a question which may be raised before the Government in the review application
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Referring to the 'proforma' attached to Form No. 1 of the Fourth Schedule in which are set out several items which have to be taken into account in assessing the cost of production, the learned counsel attacks the notes at the end of Item No. 14 which mentions the various items of expenses to be excluded in ascertaining the cost
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The notes is as follows:- "Notes:-(i) Items of expenses to be excluded from costs-- a) Bonus in excess of statutory minimum
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b) Bad debts and provisions
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c) Donations and charities
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d) Loss/Gain on sale of assets
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e) Brokerage and commission
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f) Expenses not recognized by Income-tax authorities (salary/prequisities, advertisements, etc
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g) Adjustments relating to previous years
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In particular, he argued that Item (a) 'bonus in excess of statutory minimum' should not have been excluded so also items of expenditure coming under the other heads (b) to (g) which had been allowed by Income-tax authorities as legitimate expenses
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His submission was that where bonus in excess of statutory minimum was payable under the provisions of the Bonus Act there was no option left to the manufacturer not to pay the excess bonus
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Similarly where expenses have been legitimately incurred and allowed by Income-tax authorities, there was no justification for excluding those items of expenditure from the cost
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We do not agree with the submission
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It was open to the subordinate legislating body to prescribe and adopt its own mode of ascertaining the cost of production and the items to be included and excluded in so doing
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The subordinate legislating body was under no obligation to adopt the method adopted by the Income-tax authorities in allowing expenses for the purpose of ascertaining income and assessing it
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There may be many items of business expenditure which may be allowed by Income-tax authorities as legitimate expenses but which can never enter the cost of production
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So long as the method prescribed and adopted by the subordinate legislating body is not arbitrary and opposed to the principal statutory provisions, it cannot be legitimately questioned
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Another submission of the learned counsel relating to the norms for conversion costs, packing charges and process loss of raw materials and packing materials required to the notified for the purpose of calculating retail prices of formulations
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The argument, for example, was that there should be a more scientific formula in regard to conversion cost and not, as was done, so many rupees and paise per thousand capsules or one litre of liquid
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It is open to the subordinate legislating authority to adopt a rough and ready but otherwise not unreasonable formula rather than a needlessly intricate so-called scientific formula
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We are unable to say that the subordinate legislating authority acted unreasonably in prescribing the norms in the manner it has done
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While on the question on formulations, we would like to refer to the "Oration" of Dr. N.H. Antia at the 24th Annual Convocation of the National Academy of Medical Sciences where he posed the question: "Why do we produce 60,000 formulations of drugs worth Rs.2,500 crores which reach only 20% of the population when WHO recommends only 258 drugs and Rs.750 crores worth would suffice for all our people if used in an ethical manner
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A general submission of the learned counsel was that the price of formulations should not have been prescribed until the review application filed by the manufacturer in regard to the patent bulk drugs was disposed of
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He submitted that the price of a formulation was dependant on the price of the bulk drug and it was, therefore, not right to fix the price of formulation when the price of bulk drug was in question in the review application and there was a prospect of the price of the bulk drug being increased
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We do not see any force in the submission
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We think that it is the necessary duty of the Government to proceed to fix the retail price of a formulation as soon as the price of the parent bulk drug is fixed
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