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PETITIONER: BALAKRISHNA PILLAI, CHIEF INSPECTOR OF DRUGSINTELLIGENCE   S

       Vs.

RESPONDENT: MATHA MEDICLAS AND OTHERS

DATE OF JUDGMENT15/01/1991

BENCH: VERMA, JAGDISH SARAN (J) BENCH: VERMA, JAGDISH SARAN (J) RAY, B.C. (J)

CITATION:  1991 SCR  (1)  65        1991 SCC  (2) 203  JT 1991 (1)   123        1991 SCALE  (1)35

ACT:      Drugs (Price Control) Order, 1979--Paras 10-14, 18  and 21--  Collection of excess price when drug’s maximum  retail price  fixed--Maintainability of prosecution--’Bulk  drug’-- Formulation--Interpretation of.

HEADNOTE:      Respondent  No.  1 is a firm dealing in  medicines  and respondents 2 and 3 are its managing parnter and pharmacist. In contravention of the provisions of Drugs (Price  Control) Order  1979, para 21 read with para 18 they charged  from  a Nursing Assitant of the Medical College Hospital,  Kottayam, Rs.  90 in excess of the maximum retail price fixed for  the sale  of 15 tablets of Largactil of 100 mg each and  60p  in excess  for 100 tablets of Hipnotex of 5mg each.   According to   the  prosecution  this  act  of  their  ’s   being   in contravention of the provisions of the Order, was punishable under  Section 7 of the Essential Commodities Act, 1955  and accordingly   prosecution   was   initiated   against    the respondents.   The trial court found the respondents  guilty and convicted them and sentenced respondent No. 1 firm to  a fine  of Rs. 2.000 and respondents 2 and 3 to  three  months simple  imprisonment.  On appeal, the High Court  of  Kerala acquitted  them taking the view that none of  the  aforesaid two   medicines,   namely  Largactil   and   Hipnotex   were ’formulations’  as  defined  in Section 2(f)  of  the  Drugs (Price  Control)  Order 1979 and as such the sale  of  these drugs at higher rates than the prescribed was not punishable under paras 21 read with para 18 of the order.      The  appellants  have  thus  filed  this  appeal  after obtaining  special leave.  The question for decision in  the present case relates to the correctness of the  construction made by the High Court of the provisions of the ’Order’.      Partly allowing the appeal, this Court,      HELD: A bulk drug is one which may be capable of use by itself or as an ingredient in any formulation. [69G]      Formulation  is a medicine which may comprise  even  of one bulk                                                         66 drug  by itself or more than one bulk drug.  The  definition of  ’Formulation’  is very wide and includes even  one  bulk drug  where  that one bulk drug by itself is  treated  as  a

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medicine. [70B]      The  provisions of para 21 which in terms are meant  to control  sale prices of formulations specified in the  Third Schedule as also the other provisions of the Order which  in terms  may be of limited application are  specifically  made applicable  to  all  formulations as defined  in  the  Order except  only paragraphs 10 to 14 which have  been  expressly excluded.  It is by virtue of para 18 that  the  prohibition contained   in   para  21  has  been  made   applicable   to formulations not specified in the Third Schedule. [70G-H]      The High Court misconstrued the provisions of the Drugs (Price  Control)  Order  1979.   The  Court  rejected   that construction  and held that the allegations in  the  present case, if proved, would amount to a contravention of para  21 read  with para 18 of the ’Order’ which is punishable  under Section 7 of the Essential Commodities Act, 1955. The  Court however  did  not  interfere  with  the  acquittal  of   the respondents. [72B-C]

JUDGMENT:      CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 37 of 1991.      From  the  Judgment  and Order dated 7.3.  1989  of the Kerala High Court in Crl. Appeal No. 321 of 1986.      P.S Poti and T.T. Kunhikannan for the Appellants.      T.S  Krishnamoorthy  lyer  and N.  Sudhakaran  for  the Respondents.      The Judgment of the Court was delivered by      VERMA,  J.  The respondents were found  guilty  by  the trial  Court for contravention of para 21 read with para  18 of  the  Drugs  (Prices Control)  Order,  1979  (hereinafter referred  to as ’the Order") issued under Section 3  of  the Essential Commodities Act, 1955 (hereinafter referred to  as ’the Act’) and accordingly convicted under Section 7 of  the Act.  Respondent  No.  1 firm was sentenced  to  a  fine  of Rs.2,000 while  respondents 2 and 3 who  were  the  managing partner  and pharmacist of the firm were sentenced to  three months  simple  imprisonment.  The High Court of  Kerala  at Ernakulam  (hereinafter  referred to as  ’the  High  Court’) allowed their appeal against the con-                                                        67 viction and sentence and acquitted all of them.  Hence, this special leave petition against their acquittal.      Leave granted.      The   allegation  on  which  the  prosecution  of   the respondents  was  based is that they  collected  Rs.  90  in excess of the maximum retail price fixed for the sale of  15 tablets of Largactil of 100 mg each and  60p. in excess  for 100  tablets  of Hipnotex of 5 mg each  from  one  Sepastian Joseph, a Nursing Assistant in the Medical College Hospital, Kottayam,  on 4.2.1985.  It is alleged that recovery of  the amount  in excess of the maximum retail price fixed for  the sale  of  these medicines under the drugs  (Prices  Control) Order, 1979 was a contravention of the provisions  contained therein which is punishable under Section 7 of the Essential Commodities Act, 1955.  The trial Court rejected the several defences raised by the respondents and found them guilty  of contravention   of  para 18 read with para 21 of  the  Order which  is  an   offence punishable under Section  7  of  the Essential  Commodities  Act,  1955.   The  respondents  were accordingly convicted and sentenced as aforesaid.      As earlier stated, the respondents’ appeal to the  High Court  has succeeded and they have all been acquitted.   The

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High  Court  has taken th view that  on  these  allegations, contravention of para 18 of the Order is not made out.   The High Court has summarised its conclusion as under:           "The  upshot  of  the  above  discussion  is  that          Largactil    and    Hipnotex--Chlorpromazine    and          nitrazepam--are    only   bulk   drugs   and    not          formulation.   The  appellants, none of whom  is  a          manufacturer  or distributor, cannot  be  convicted          for  contravention  of paragraph 18 of  the  Order.          (The  position is seemingly different in the  Order          of  1987 because paragraph 18 of the Order of  1987          contains  inhibition  against sale  of  bulk  drugs          also).                In  the result, I allow this appeal  and  set          aside the conviction and sentence.  The  appellants          are  acquitted  and  are  directed  to  be  set  at          liberty.      The  real question for decision in the present case  is the  correctness of the construction made by the High  Court of  the provisions of the ’Order’.  Shri P.S. Poti,  learned counsel for the appellants contended that the  grievance  in this appeal is really to the construction                                                        68 made  by  the High Court of the provisions  of  the  ’Order’ which is affecting a large number of similar matters are not to  the  outcome of individual matter  before  us.   Learned Counsel   contended  that  the  appellants  are   not   much interested  in  assailing  the  acquittal  in  the   present individual  matter,  but  the correct  construction  of  the provisions of the Order is necessary for future guidance. In our  opinion, it is necessary to examine the  provisions  of the  ’Order.’ and to indicate their correct meaning in  view of the general importance  thereof.      The  Order  was  made  by  the  Central  Government  in exercise  of  the  powers  conferred by  Section  3  of  the Essential  Commodities  Act,  1955.  Para  2  of  the  order contains  the  definitions, some of which may  be  referred. Clause  (a)  of  para  2 defines ’bulk  drug’  to  mean  any substance.....’which is used as such, or as an ingredient in any formulations’.’Dealer’ is defined in clause(b) to mean a person  carrying  on  the business of purchase  or  sale  of drugs,  whether as a wholesaler or retailer and includes  an agent  of  a  dealer. ’Drug’ is defined  in  clause  (d)  to include  ’bulk drugs and formulations’. Clause  (f)  defines ’formulation’  to   mean  a medicine processed  out  of,  or containing  ’one  or more bulk drugs or drug’.   Clause  (q) defines  ’price  list’ to mean a price list referred  to  in this  Order.  Clause (r) defines ’retail price’ to mean  the retail  price  of a drug arrived at or fixed  in  accordance with  the  provisions of this Order.  The other  clauses  of Para  2 contain other definitions including the  definitions of ’retailer’ and ’wholesaler.  It is not necessary to refer to  them  in detail.  Para 3 contains the power to  fix  the maximum  sale price of indigenosly manufactured  bulk  drugs specified in First or Second Schedule of the Order.  Para 19 requires every manufacturer or importer of a formulation  to furnish  to  the  dealers, State Drug  Controllers  and  the Government,  a  price list showing the price  at  which  the formulation  is  sold to a   retailer and  every  dealer  is required to display the price list at a conspicuous part  of his business premises.  Part 20 required every manufacturer, importer or distributor of a formulation to display on label of   the  container  the  maximum  retail  price   of   that formulation. Paras 18, 21 and 22, the construction of  which is in dispute, read as under:

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         "18. Certain provisions of this Order to apply  to          formulations  not included in Category I,  Category          II   or  Category  III  of  Third  Schedule.--   The          provision of this Order, other than those contained          in  paragraphs  10 to 14  (both  inclusive),  shall          apply, to any formulation not specified in Category          I,  Category  II  or  Category  III  of  the  Third          Schedule."                                                        69           :21.  Control  of  sale  prices  of   formulations          specified  in  Third Schedule.--No  retailer  shall          sell  any  formulations  specified in  any  of  the          categories in the Third Schedule to any person at a          price exceeding the price specified in the  current          price  list or the price indicated on the label  of          the  container  or pack thereof whichever  is  less          plus the local taxes, if any, payable.                Explanation.--  For  the  purposes  of   this          paragraph,  "local  taxes" include  sales  tax  and          octroi actually paid by the retailer under any  law          in force in a particular area."           "22. Sale of split quantities of formulations.--No          dealer shall sell loose quantity of any formulation          drawn  from a bottle pack of such formulation at  a          price  which  exceeds  the pro-rate  price  of  the          formulation plus 5 per cent thereof.                provided  that nothing in this  behalf  shall          apply to any formulation compounded at the premises          of the dealer."      The  view  taken  by the High Court  is  that  the  two formulations, namely,  Largactil and Hipnotex, the  sale  of which at an excess price is alleged to be the  contravention of the Order, not being formulations specified in any of the categories   in  the  Third  Schedule  to  the  Order,   the prohibition  contained  in  para  21  of  the  Order  has no application.  On this basis, the view taken is that the sale of  these  two formulations in excess of  the  retail  price fixed for their sale is not a contravention of any provision of  the  Order  to attract  the  punishment  provided  under Section  7 of the Essential Commodities Act, 1955.   It  has also  been  held by the High Court that none  of  these  two medicines is a formulation as defined in clause (f) of  para 2  of  the  Order but merely a bulk drug,  which  fact  also excludes  the  application  of para 21  of  the  Order.   It appears that this position was not seriously contested  even by  the learned public prosecutor in the Courts  below.   In our  opinion, such a view results from a mis-reading of  the material provisions of the Order.      The  definition of ’bulk drug’ given in clause  (a)  of para 2 shows that it means any substance ’which  is used  as such’  or  ’as an ingredient in any formulations’.   Thus  a bulk drug is one which may be capable of use by itself or as an ingredient in any formulation.  Drug is defined in clause (d)  of para 2 to include  ’bulk drugs’ and  ’formulations’. Clause-                                                          70 (f)   then  defines  ‘formulation’  to  mean  any   medicine processed  out  of or containing one or more bulk  drugs  or drug.   Thus  formulation is a medicine which  may  comprise even of one bulk drug by itself or more than one bulk  drug. The  definition  of  ’formulation’ is  thus  very  wide  and includes  even  one bulk drug where that one  bulk  drug  by itself is treated as a medicine.  It is difficult to  uphold the  view  that  the two medicines,  namely,  Largactil  and Hipnotex, do not fall within the definition of ’formulation’

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contained in clause (f) of para 2 of the Order.  One of  the two  difficulties pointed out by the High Court in  applying para  21 of the Order to the present case is clearly out  of the way.      The  only surviving question now is whether para 21  of the  Order is rendered inapplicable merely because  none  of these formulations is specified in any of the categories  in the  Third Schedule to the Order.  In other words:   is  the High  Court correct in taking the view that  notwithstanding the   fixation  of  the  maximum  retail  price   of   these formulations in accordance with the provisions of the  Drugs (Prices  Control)  Order, 1979, there is no  provision  made therein to prohibit their sale at an amount in excess of the maximum  retail price fixed under the Order to  attract  the punishment   provided   in  Section  7  of   the   Essential Commodities Act, 1955? In our opinion, it is not so.   There is no controversy that by an amendment made in 1987 to which we shall refer later, the matter has been placed beyond  the scope  of  any  argument.   However,  even  prior  to   that amendment,  the  matter is clear by  the  express  provision contained in para 18 as it existed even then.      Para 18 clearly says that the provisions of this  Order ’other  than  those contained in paragraphs 10 to  14  (both inclusive)’ shall apply to any formulations not specified in Category  I,  Category  II  or Category  III  of  the  Third Schedule.   It  is plain that the provisions  of  the  Order except  paragraphs  10  to  14  which  have  been  expressly excluded,  are specifically made applicable to  formulations which  are  not  specified in the Third  Schedule.   It  is, therefore,  clear  that the provisions of para 21  which  in terms  are  meant  to control sale  prices  of  formulations specified in the Third Schedule as also the other provisions of  the Order which in terms may be of  limited  application are  specifically  made applicable to  all  formulations  as defined in the Order except only paragraphs 10 14 which have been  expressly excluded.  It is by virtue of para  18  that the   prohibition  contained  in  para  21  has  been   made applicable   to  formations  not  specified  in  the   Third Schedule.   This  is  also the logical view  to  take.   The contrary  view would lead to the conclusion that inspite  of the price fixation made for the formula-                                                          71 tions  not  specified  in the Third Schedule,  there  is  no prohibition  made against its sale for an amount  in  excess thereof with the result that the price fixation would be  an exercise  in  futility.  The Drugs (Prices  Control)  Order, 1987,  which has replaced the Drugs (Prices Control)  Order, 1979,  contains paras 18 and 21 differently worded  to  show clearly  that  such an argument is now  not  even  available under the 1987 Order.      We  are  clearly  of the opinion that  the  High  Court misconstrued  the  provisions of the Drugs  (Prices Control) Order,  1979, to take the view that none of   the  aforesaid two   medicines,   namely,  Largactil   and   Hipnotex   are ’formulations’  as  defined  in Section 2(f)  of  the  Drugs (Prices Control) Order, 1979; and that the sale of these two medicines  for  an amount in excess of  the  maximum  retail price  fixed is not punishable under para 21 read with  para 18 of the Order.      The  only question now is of the  order we should  make in  this  matter.  Shri  T.S.  Krishnamurthy  lyer,  learned counsel  for  the respondents very fairly  stated  that  the construction  we have made of the several provisions of  the 1979  Order  including  paras 18 and 21  thereof  cannot  be seriously   disputed.   However,  he  contended   that   the

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respondents  had raised several defences none of  which  has been  considered  by the High Court since it  acquitted  the respondents  only  on  the construction  it  made  of  these provisions.   He, therefore, argued that setting  aside  the High   Court’s  order  should  not  automatically  lead   to restoration  of  conviction and sentence made by  the  trial court since other defences raised by the respondents  remain for  consideration.  He suggested that in view of the  lapse of  several years from the date of the alleged  offence  and the peculiar facts of this case, we may merely set aside the High  Court’s  order  but not  restore  the  conviction  and sentence  of  the  respondents.  He  pointed  out  that  the customer to whom the medicines are alleged to have been sold at an excess price is  himself a member of the nursing staff of  a hospital and it is unreasonable to take the view  that he would pay Rs. 99 for 15 tablets of Largactil against  its retail  price of Rs. 9 only, particularly when he  had  been purchasing  these drugs for a long time.  We find  merit  in the contention of learned counsel for the respondents and we are  inclined  to adopt the course suggested by him  in  the light  of peculiar facts of this case.  In our  opinion,  it would  be inappropriate after the lapse of several years  to send back the case to the High Court for  the  deciding  the remaining  defences  raised by the respondents  which  would further  prolong conclusion of the trial.  It is also  clear that  without  rejecting  the  other  defences,  it  is  not possible to uphold the conviction and sentence                                                        72 awarded by the trial court.  In such a situation, the course suggested  by Shri T.S. Krishnamurthy lyer, particularly  in view  of the stand taken by Shri P.S. Poti on behalf of  the appellants,  that the appellants are more keen to  know  the correct  meaning of the provisions of the Order, appears  to be the proper course to adopt in the present case.      Consequently,  we reject the High Court’s  construction of  the provisions of the ’Order’ and hold that  allegations in   the  present  case,  if  proved,  would  amount  to   a contravention  of  para 21 read with  para 18 of  the  Drugs (Prices  Control)   Order, 1979, which is  punishable  under Section 7 of the Essential Commodities Act, 1955.   However, for the reasons already given, we do not interfere with  the acquittal  of  the respondents.  The appeal is  disposed  of accordingly. Y.L.   Lal                            Appeal allowed partly.                                                         73