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10 and 11, keeping in view the cost of or efficiency, or both, of major manufacturers of such formulations
Statute
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net-worth' means the share capital of a company plus free reserve, if any
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new bulk drug' means a bulk drug manufactured within the country, for the first time after the commencement of this Order
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Pooled price' in relation to a bulk drug, means the price fixed under para 7
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pre-tax return' means profits before payment of incometax and sur-tax and includes such other expenses as do not form part of the cost of formulations
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retention price' in relation to a bulk drug means the price fixed under paras 4 and 7 for individual manufacturers, or importers, or distributors, or such bulk drugs
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The distinction between an essential bulk drug included in the schedule and a bulk drug not so included in the schedule, which was made in 1970 Drugs (prices Control
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Order was abandoned in the 1979 Order
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Bulk drugs were, however, broadly divided into indigenously manufactured bulk drugs, imported bulk drugs and hulk drugs which were both manufactured indigenously as also imported
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Paragraph 3 of the 1979 Order enables the Government, with a view to regulating the equitable distribution of any indigenously manufactured bulk drug specified in the first or the second schedule and making it available at a fair price and after making such enquiry as it deems fit, to fix from time to time by notification in the official gazette, the maximum price at which the bulk drug shall be sold
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Cl
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2) of Paragraph 3 provides that while so fixing the price of a bulk drug, the Government may 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
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By way of an explanation efficient manufacturer is defined to mean "a manufacturer-(i
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Whose production of such bulk drug in relation to the total production of such bulk drug in the country is large, or (ii) who employs efficient technology in the production of such bulk drug
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We have already noticed that 'net worth' is defined to mean 'the share capital of a company plus free reserve, if any'. "Free reserve" itself is separately defined
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It is then prescribed by clause (3)-- "No person shall sell a bulk drug at a price exceeding the price notified under sub-paragraph 1, plus local taxes, if any payable: provided that until the price of bulk drug is so notified, the price of such bulk drug shall be the price which prevailed immediately before the commencement of this order and the manufacture of such bulk drug at a price exceeding the price which prevailed as aforesaid
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This means that until the maximum sale price of an indigenously manufactured bulk drug is fixed under paragraph 3 of the 1979 Order, the price fixed under paragraph 4 of the 1970 order or the price permitted under paragraph 5 of the 1970 order was to be maximum sale price
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Paragraph 3(4)(a) requires a manufacturer commencing production of the bulk drug specified in the First or Second Schedule, the price of which has already been notified by the Government, not to sell the bulk drug at a price exceeding the notified price
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Paragraph 3(4)(b) provides that where the price of a bulk drug has not been notified by the Government, the manufacturer shall, within 14 days of the commencement of the the production of such bulk drug, make an application to the Government in Form I and intimate the Government the price at which he intends to sell the bulk drug and the Government may, after making such an enquiry as it thinks fit, by order, fix a provisional price at which such bulk drug shall be sold
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Paragraph 4 of the 1979 order provides that notwithstanding anything contained in paragraph 3, the Government may, if it considers necessary or expedient so to do for increasing the production of an indigenously manufactured bulk drug specified in the first or second schedule, by order, fix-- "(a) a retention price of such bulk drug, (b) a common sale price for such bulk drug taking into account the weighted average of the retention price fixed under clause
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a
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Paragraph 4 is thus in the nature of an exception to paragraph 3
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It is meant to provide a fillip to individual manufacturers of bulk drugs whose production it is necessary to increase
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Retention price, by its very definition pertains to individual manufacturers
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Common sale price, we take it, is the price at which manufacturers whose retentions are fixed may sell the bulk drug despite the maximum sale price fixed under paragraph 3
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Paragraph 5 deals with the power of the Government to fix maximum sale price of new bulk drugs
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Paragraph 6 enables the Government to fix the maximum sale price of imported bulk.drugs specified in First and Second Schedules
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Paragraph 7 deals with the power of the Government to fix retention price and pooled price for the sale of bulk drugs specified in the First and Second Schedules which are both indigenously manufactured and imported
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Paragraph 9 empowers the Government to direct manufacturers of bulk drugs to sell bulk drugs to manufacturers of formulations
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Paragraph 10 prescribes a formula for calculating the retail price of formulations
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The formula is: "R.P. = (M.C.+C.C.+P.M.+P.C.) x (1+MU)+ E.D. 100 "R.P." means retail price
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M.C." 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
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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 Gazettee in this behalf
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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 notifi- cation in the official Gazette in this behalf
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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
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M.U." means make-up referred to in para
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E.D." means excise duty
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Paragraph 11 explains what 'Mark-up' means
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Paragraph 12 empowers the Government to fix leader prices of formulations of categories
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I and II specified in the third schedule
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Paragraph 13 empowers the Government to fix retail price of formulations specified in category III of third schedule
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Paragraph 14 contains some general provisions regardingprices of formulations
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Paragraph 15 empowers the Government to revise prices of formulations
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Paragraph 16 provides that where any manufacturer, importer or distributor of any bulk drug or formulation fails to furnish information as required under the order within the time specified therein, the Government may, on the basis of such information as may be available with it, by order, fix a price in respect of such bulk drug or formulation as the case may be
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Paragraph 17 requires the Government to maintain the Drugs Prices Equalization Account to which shall be credited, by the manufacturer, among other items, "the excess of the common selling price or, as the case may be, pooled price over his retention price
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It is provided that the amount credited to the Drugs Prices Equalization Account shall be spent for paying to the manufacturer, "the shortfall between his retention price and the common selling price or as the case may be, the pooled price
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Paragraph 27 enables any person aggrieved by any notification or order under paragraphs 3, 4, 5, 6, 7, 9, 12, 13, 14, 15 or 16 to apply to the Government for a review of the notification or order within fifteen days of the date of the publication of the notification in the official Gazette, or, as the case may be, the receipt of the order by him
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Bulk drugs constituting categories
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I and II are enumerated in the First Schedule
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Bulk drugs constituting category III are enumerated in the Second Schedule
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Formulations constituting categories I, II and III are enumerated in the Third Schedule
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The Fourth Schedule prescribes the various forms referred to in the different paragraphs of the Drugs (prices Control) Order
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Form No. 1 which is referred to in paragraphs 3(4), 5 and 8(1) is titled "Form of application for fixation or revision of prices of bulk drug
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The several columns of the Form provide for various particulars to be furnished and item 18 requires the applicant to furnish ,"the cost of production of the bulk drug as per proforma (attached) duly certified by a practising Cost/Chartered Accountant
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The 'proforma' requires particulars of costdata, such as, raw materials, utilities, conversion cost, total cost of production, interest on borrowings, minimum bonus, packing, selling expenses, transport charges, transit insurance charges, total cost of sales, selling price, existing price or notional or declared prices, etc
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to be furnished
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A note at the end of the proforma requires the exclusion from cost certain items of expenses, such as, bonus in excess of statutory minimum, bad debts and provisions, donations and charities, loss/gain on sale of assets, brokerage and commission, expenses not recognised by income tax authorities and adjustments relating to previous years
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Shri G. Ramaswamy, learned Additional Solicitor General on behalf of the Union of India, submitted that the fixation of maximum price under paragraph 3 of the Drugs (prices Control
Argument
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Order was a legislative activity and, therefore, not subject to any principle of natural justice
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He urged that relevant information was required to be furnished and was indeed furnished by all the manufacturers in the prescribed form as required by paragraph 3(4) of the Drugs (prices Control) Order
Argument
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This information obtained from the various manufacturers was taken into account and a report was then obtained from the Bureau of Industrial Costs and Prices, a high-powered expert body specially constituted to undertake the study of industrial cost structures and pricing problems and to advise the Government
Argument
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It was only thereafter that notifications fixing the prices were issued
Argument
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He further submitted that paragraph 27 of the Central Order gave a remedy to the manufacturers to seek a review of the order fixing the maximum price under paragraph 3
Argument
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The review contemplated by paragraph 27 in so far as it related to the notification under paragraph 3, it was submitted by the learned Additional Solicitor General, did not partake the character of a judicial or quasi-judicial proceeding
Argument
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He urged that the manufacturers had invoked the remedy by way of review, but before the applications for review could be dealt with, they rushed to the court with the writ petitions out of which the appeal and the special leave petitions arise
Argument
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He urged that the Government had always been ready and wilting to give a proper hearing to the parties and in fact gave them a heating in connection with their review applications
Argument
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The grievance of the manufacturers in the writ petitions that they were not furnished the details of the basis of the price fixation was not correct since full information was furnished at the time of the hearing of the review applications when the matter underwent thorough and detailed discussion between the parties and the Government as well as the Bureau of Industrial Costs and Prices
Argument
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The submission of Shri Anil Diwan, learned counsel for the respondents was that unlike other price control legislations, the Drugs (prices Control) Order ,was designed to induce better production by providing for a fair return to the manufacturer
Argument
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Reference was made to the Hathi Committee report which had recommended a return of 12 to 14% post tax return on equity, that is, paid up capital plus reserves and the 'Statement on Drug Policy' which mentioned that ceiling prices may be determined by taking into account production costs and a reasonable return
Argument
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Great emphasis was laid on the second clause of paragraph 3 of the 1979 Order which provides that in fixing the price of a bulk drug, the Government may take into account the average cost of production of such bulk drug manufactured by an efficient manufacturer and allow a reasonable return on networth
Argument
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It was submitted that the provision for an enquiry preceding the determination of the price of a bulk drug, the prescription in paragraph 3 cl
Argument
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2 that the average cost of production of the drug manufactured by an efficient manufacturer should be taken into account and that a reasonable return on networth should be allowed and the provision for a review of the order determining the price, established that price-fixation under the Drugs (prices Control
Argument
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Order 2979 was a quasijudicial activity obliging the observance of the rules of natural justice
Argument
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The suggestion of the learned counsel was that the nature of the review under paragraph 27 was so apparently quasi-judicial and that the need to know the reasons for the order sought to be reviewed was so real if the manufacturer was effectively to exercise his right to seek the quasijudicial remedy of review, that by necessary implication it became obvious that the Order fixing the maximum price must be considered to be quasijudicial and not legislative in character
Argument
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The provision for enquiry in the first clause of paragraph 3 and the prescription of the matters to be taken into account in the second clause of paragraph 3 further strengthened the implication, according to the learned counsel
Argument
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It was contended that in any case, whatever be the nature of the enquiry and the order contemplated by paragraph 3, the review for which provision made by paragraph 27 was certainly of a quasijudicial character and, therefore, it was necessary that the manufacturers should be informed of the basis for the fixation of the price and furnished with details of the same in order that they may truly and effectively avail themselves of the remedy of review
Argument
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If that was not done, the remedy would become illusory
Argument
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It was argued with reference to various facts and figures that the price had been fixed in an arbitrary manner and the Government was not willing to disclose the basis on which the prices were fixed on the pretext that it may involve disclosure of matters of confidential nature
Argument
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It was stated that the applications of the manufacturers for review of the notifications fixing the prices had not been disposed of for years though time was really of the very essence of the matter
Argument
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The prices of formulations were dependent on the prices of drugs and it was not right that prices of formulations should have been fixed even before the applications for review against the notifications fixing the price of bulk drugs were disposed of
Argument
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It was suggested that the delay in disposing of the review applications had the effect of rendering the original notifications fixing the prices unreal and out of date and liable to be struck down on that ground alone
Argument
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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 quasijudicial activity
Ratio of the decision
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Nothing in the scheme of the Drugs (prices Control
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Order induces us to hold that price fixation under the Drugs (prices Control
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Order is not a legislative activity, but a quasi-judicial activity which would attract the observance of the principles of natural justice
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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
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What the order does contemplate however is 'such enquiry' by the Government 'as it thinks fit
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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
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In the present case, the enquiry contemplated by paragraph 3 of Drugs (prices Control
Ratio of the decision
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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
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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
Ratio of the decision
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39(b) of the Constitution
Ratio of the decision
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It is primarily from the consumer public's point of view that the Government is expected to make its enquiry
Ratio of the decision
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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
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The enquiry is to be made from that angle and directed towards that end
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So, information may be gathered from whatever source considered desirable by the Government
Ratio of the decision
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The enquiry, obviously is not to be confined to obtaining information from the manufacturers only and indeed must go beyond
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However, the interests of the manufacturers are not to be ignored
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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
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For this purpose too, the Government may gather information from any source including the manufacturers
Ratio of the decision
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