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CASE NO.: Appeal (civil)  3375-3384 of 2002

PETITIONER: Secretary, Ministry of Chemicals & Fertilizers   Government of India

RESPONDENT: Vs. M/s. Cipla Ltd. & Ors.                                    

DATE OF JUDGMENT: 01/08/2003

BENCH: S. RAJENDRA BABU, P.VENKATARAMA REDDI & ARUN KUMAR.

JUDGMENT:

JUDGMENT

P. Venkatarama Reddi, J.

1.1     These appeals by special leave preferred by the Union of  India are directed against the common judgment of the Bombay  High Court in a batch of writ petitions filed under Article 226 of the  Constitution by the manufacturers/importers of certain bulk drugs  and their formulations. The bulk drugs concerned are seven in  number. They are: Salbutamol, Theophylline, Cyproflaxacin,  Norfloxacin, Cloxacillin, Doxycycline and Glipizide.  These bulk  drugs and the formulations made out of  them are sold within the  country and part of the quantities produced are also exported  outside the country. The challenge is to the inclusion of the said  bulk drugs in the first schedule to the Drugs (Price Control) Order,  1995 (hereinafter referred to as ’the DPCO’). Though the fixation of   price pursuant to the provisions of the said Order was also  challenged in some of the writ petitions, that issue was not gone into  by the High Court and at any rate, the mechanics of  price fixation is  not the contentious issue  before us. However, it may be noted that  the remedy by way of review is available under paragraph 22 of the  DPCO to seek reconsideration of price fixation. The immediate  provocation for filing the writ petitions in the High Court seems to be  the notices issued by the National Pharmaceutical Pricing Authority,  calling upon some of the Respondent-Companies to deposit the  overcharged amounts in relation to the formulations of  scheduled  drugs. 1.2     The High Court held that the concerned drugs should not have  been brought within the purview of the DPCO, 1995 and  consequently, there could be no fixation of price in relation to those  drugs. The notices demanding overcharged amounts were  quashed. The writ petitions were thus allowed by the Division Bench  of High Court. 2.1     The DPCO, 1995 which came into force on 6th January, 1995,   was promulgated by the Central Government in exercise of the  powers conferred by Section 3 of the Essential Commodities Act. It  repealed the earlier DPCO of 1987, under which more number of  drugs were subjected to price control.  ’Drug’ as defined in Drugs &  Cosmetics Act is one of the essential commodities. 2.2     According to Section 2(a) of DPCO,   ’Bulk Drug’ means any  pharmaceutical, chemical, biological or plant product including its  salts, esters, stereo-isomers and derivatives, conforming to  pharmacopoeia or other standards specified in the Second  Schedule to the Drugs and Cosmetics Act, 1940  and which is used  as such or as an ingredient in any formulation.  ’Formulation’ is  defined to mean a medicine processed out of, or containing one or

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more bulk drug or drugs with or without the use of any  pharmaceutical aids, for internal or external use in the diagnosis,  treatment, mitigation or prevention of disease in human beings or  animals. 2.3     Paragraph 3 of DPCO empowers the Central Government to  fix, from time to time, a maximum sale price at which the bulk drug  specified in the first schedule shall be sold, after making such  inquiry, as it deems fit.  The opening clause of sub-para (1) spells  out the avowed purpose of price control on the scheduled bulk  drugs. The declared objective is to regulate the equitable  distribution and increasing supplies of the specified bulk drug and  making them available at a fair price. There is a prohibition against  the sale of bulk drug at a price exceeding the maximum sale price  fixed under sub-paragraph (1) plus local taxes, if any. As already  observed, we are not concerned here with the modalities of fixation  of price. The very inclusion of these bulk drugs in the schedule is  being assailed on the ground that it is opposed to the norms laid  down by the Central Government itself in the Drug Policy of 1994  and, therefore, the delegated legislative power exercised by the  Government is arbitrary and violative of Article 14 of the  Constitution. The plea of the respondents was accepted by the High  Court. 2.4     In the Drug Policy document issued on 15th September, 1994,  the Central Government noticed that during the last decade, the  drug industry had grown significantly in terms of production of bulk  drugs and formulations and the export performance of the industry  had been commendable. It was said that the pharmaceutical sector  had been able to carve a special niche for itself in the international  market as a dependable exporter of bulk drugs. The drug policy with  regard to pricing has been stated thus in paragraph 9 of the policy  Paper: "9. Pricingâ\200\224The aberrations which have come to notice,  in the listing of drugs and their categorization for the  purpose of price control, need to be eliminated by the  use of transparent criteria applied across the board on  all the drugs with the minimum use of subjectivity. The  high turnover of a drug is an index of its extent of usage  and is considered to meet the requirements of objectivity  justifiable on economic considerations. However, the  monopoly situation in cases of drugs with comparatively  lower turnover has also to be kept in view. Also, as an  experimental measure, drugs having adequate  competition may not be kept under price control and if  this proves successful it would pave the way for further  liberalization. In the event, however, of prices of these  drugs not remaining within reasonable limits, the  Government would reclamp price control."

In paragraph 11, it is statedâ\200\224

"In the light of the apprehensions expressed in the  Parliament on the likely spurt in the prices of medicines,  it has been felt that it would not be desirable to allow  automaticity in the pricing mechanism. The Government  would set up an independent body of experts, to be  called the National Pharmaceutical Pricing Authority, to  do the work of price fixation. This expert body would  also be entrusted with the task of updating the list of  drugs under price control each year on the basis of the  established criteria/guidelinesâ\200¦."

2.5     The Government’s resolve to closely monitor the trends of  prices of medicines and to take appropriate measures to reclamp  price control in case the prices of such medicines rise  unreasonably, has been stressed in paragraph 12. Then, we come

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to the most important paragraph in the Drug Policy i.e., 22.7.2 which  bears the heading ’Span of Control’. It sets out the criteria for  bringing the drugs under price control. We quote paragraph 22.7.2:- 22.7.2. Span of Controlâ\200\224 (i)     The criterion of including drugs under price control  would be the minimum annual turnover of Rs.400  lakhs.

(ii)    Drugs of popular use in which there is a monopoly  situation be kept under price control. For this  purpose for any bulk drug, having an annual  turnover of Rs.100 lakhs or more there is a single  formulator having 90% or more market share in  the Retail Trade (as per ORG) a monopoly  situation would be considered as existing.

(iii)   Drugs in which there is sufficient market  competition viz., at least 5 bulk drug producers  and at least 10 formulators and none having more  than the 40% market share in the Retail Trade (as  per ORG) may be kept outside the price control.  However, a strict watch would be kept on the  movement of prices as it is expected that their  prices  would be kept in check by the forces of  market competition. The Government may  determine the ceiling levels beyond which  increase in prices would not be permissible.

(iv)    Government will keep a close watch on the prices  of medicines which are taken out of price control.  In case, the prices of these medicines rise  unreasonably, the Government would take  appropriate measures, including reclamping of  price control. (v)     For applying the above criteria, to start with, the  basis would be the data upto 31st March, 1990  collected for the exercise of the Review of the  Drug Policy. The updating of the data will be done  by the National Pharmaceutical Pricing Authority  as detailed in para 22.7.4(i).

3.      The central theme of the arguments is that the norms set out  in sub-Paras (i), (ii) & (iii) have not been adhered to by the  Government while framing the first schedule to DPCO in purported  implementation of  the drug policy.  There was either deviation from  the criteria set out or there was no scientific or rational assessment  of the factors relevant to the norms. Most of the arguments centered  round the interpretation of the three clauses in para 22.7.2â\200\224an  exercise which is usually associated with the construction of  statutes. The sum and substance of the arguments on behalf of the  respondents is that the seven bulk drugs get excluded from the  span of control under one or more norms spelt out in para 22.7.2,  whereas the stand of the appellants is that the concerned bulk  drugs were included in the schedule only after being satisfied that  they came within the ambit of price control criteria. It is also the  contention of the appellant that the Government’s decision to bring  these important bulk drugs within price control is in accordance with  the objectives underlying in Section 3 of the Essential Commodities  Act, particularly, the interests of consumers. Every attempt was  made to examine the facts and figures by an Expert Group of the  standing committee, keeping in view the prescribed norms in Drug  Policy. It is pointed out that the High Court cannot go into the  intricacies of price fixation under Article 226 of the Constitution or sit  in judgment over the exercise done by experts.

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4.1     It is axiomatic that the contents of a policy document cannot  be read and interpreted as statutory provisions. Too much of  legalism cannot be imported in understanding the scope and  meaning of the clauses contained  in policy formulations. At the  same time, the Central Government which combines the dual role of  policy-maker and the delegate of legislative power,  cannot at its  sweet will and pleasure give a go-bye  to the policy guidelines  evolved by itself in the matter of selection  of drugs for price control.  The Government itself stressed the need to evolve and adopt   transparent criteria to be applied across the board so as to minimize  the scope for subjective approach and therefore came forward with  specific criteria. It is nobody’s case that for any good reasons, the  policy or norms have been changed or became impracticable of  compliance. That being the case, the Government exercising its  delegated legislative power should make a real and earnest attempt  to apply the criteria laid down by itself.  The delegated legislation  that follows the policy formulation should be broadly and  substantially in conformity with that policy; otherwise it would be  vulnerable to attack on the ground of arbitrariness resulting in  violation of     Article 14. 4.2     In Indian Express Newspapers Vs. Union of India [(1985) 1  SCC Page 641], the grounds on which subordinate legislation can  be questioned were outlined by this Court. E.S. Venkataramiah, J.  observed thus: "A piece of subordinate legislation does not carry the  same degree of immunity which is enjoyed by a statute  passed by a competent Legislature. Subordinate  legislation may be questioned on any of the grounds on  which plenary legislation is questioned. In addition it  may also be questioned on the ground that it does not  conform to the statute under which it is made.

***                     ***                     *** It may also be questioned on the ground that it is  unreasonable, unreasonable not in the sense of not  being reasonable, but in the sense that it is manifestly  arbitrary. In England, the Judges would say "Parliament  never intended authority to make such rules.  They are  unreasonable and ultra vires."

4.3     True, the breach of policy decision by itself is not a ground to  invalidate delegated legislation.  But, in a case like this,  the  inevitable fallout of the breach of policy decision which the  Government itself treated as a charter for the resultant legislation is  to leave an imprint of arbitrariness on the legislation. When the  selection or classification of certain drugs is involved for the purpose  of price control, such selection or classification should be on rational  basis and cannot be strikingly arbitrary.  No doubt, in such matters,   wide latitude is conceded to the legislature or its delegate.  Broadly,  the subordinate law-making authority is guided by the policy and  objectives of primary legislation disclosed by preamble and other  provisions.  The delegated legislation need not be modelled on a set  pattern or pre-fixed guidelines. However, where the delegate goes a  step further, draws up and announces  a rational policy in keeping  with the purposes of enabling legislation and even lays down  specific criteria  to promote the policy, the criteria so evolved  become the guide-posts for  its legislative action.   In that sense, its  freedom of classification will be regulated by the self-evolved criteria  and there should be demonstrable justification for deviating  therefrom. Though exactitude  and meticulous conformance is not  what is required, it is not open to the Government to go hay-wire  and flout or debilitate the set norms either by giving distorted  meaning to them or by disregarding the very facts and factors which  it professed to take into account in the interest of transparency and  objectivity. Otherwise, the legislative act of the delegate in choosing

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some drugs for price control while leaving others will attract the  wrath of Article 14. That is why the Union of India has taken the  stand throughout that it stood by the policy while framing the  legislation and that there was every endeavour to apply the criteria  spelt out in the Drug Policy of 1994 before including the drugs in  question in the first schedule. The correctness of this contention  should, of course, be examined. 5.1     With this prologue, let us proceed to analyze the three  relevant criteria in the drug policy. According to the first criterion, for  bringing the drugs under the price control, the minimum annual  turnover of the drug should be 400 lacs. However, this requirement  is qualified by and subject to the criteria laid down in (ii) & (iii).   Where a monopoly situation prevails in respect of any bulk drug, the  minimum annual turnover requirement gets reduced to 100 lacs.  The monopoly situation is deemed to exist where there is a single  

formulator commanding 90% or more market share in the retail  trade (as per ORG data). According to the 3rd criterion, even if  minimum annual turnover exceeds 400 lacs, the drug will be kept  outside price control in case there is sufficient market competition.  The yardstick for assessing whether there is sufficient market  competition, according to clause (iii) is that there are at least five  producers of the particular bulk drug and at least ten formulators  and none of them have more than 40%  market share in the retail  trade (as per ORG data). The said criteria have to be worked out with reference to the  data available upto 31st March, 1990 which means, the relevant  facts and figures relating to the financial year 1989-90 have to be  taken into account.  This is not in dispute. 5.2     As already noted, there is no quarrel about the criteria that  has been laid down. It is not the case of the Union of India that any  different criteria had been applied while promulgating the DPCO of  1995. The controversy revolves round its actual application or  methodology of working out the criteria. What is the annual turnover  made up of?  In other words, how to work out the turnover figures?  Is there sufficient market competition as contemplated by         clause (iii)? It is with reference to these two aspects that the  Government’s stand has not been accepted and the writ petitioner’s  contention found its acceptance by the High Court. 5.3     First, we shall take up the issue of ’annual turnover’. The  stand of the appellant, as discernible from the affidavits on record  sworn to by the officials of the Department of Chemicals and  Petrochemicals, Government of India is that the turnover of bulk  drug ought not to be mixed up with retail sale data of the  formulations of that bulk drug; in other words, the retail sale data  pertains to formulations of a bulk drug and not to the bulk drug itself.  The broad manner in which the turnover has been assessed is  indicated in paragraph 8 of the rejoinder affidavit filed in SLPs. It is  stated that the expert group of the Standing Committee which went  into the whole issue of exclusion/inclusion of drugs under price  control "took the data for turnover of the bulk drugs comprising of  the value of its total production in the country and value of weighted  average of landed cost of total imports into the country, as the basis  for viewing the price scenario from different points of view". It is then  stated in paragraph 10 - "In the further respectful submission of the  petitioner the intent behind using the said word (turnover) has been  to determine the extent of usage of a bulk drug in the country  (emphasis supplied).  This was the measure adopted by the expert  group in case of each bulk drug by taking into account the  aggregate of its total imports into the country and its total  indigenous production in the country. This has been the connotation  of the word ’turnover’ at various levels throughout the deliberations  and in implementation of the policy through DPCO 1995 and was  never confined to the narrow connotation of the word ’sales

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turnover’ ".  In short, it is submitted (vide paragraph 13) that the  value of total production plus imports of the bulk drug in the country  determines the annual turnover for the purpose of clauses (i) & (ii)  of para 22.7.2. As a corollary to this stand, the contention advanced  on behalf of the Union of India is that export sales could also be  taken into account in arriving at the annual turnover. According to  the respondents (writ petitioners), the annual turnover could only  mean sales of bulk drug within the country either in the same form  or by way of formulations and it has nothing to do with export sales.  The entirety of production and imports cannot be regarded as  turnover. It is submitted by the respondents that the bulk drugs are  sold mostly in the form of formulations and the quantities of bulk  drugs utilized in such formulations are given in ORG data. From  this, the bulk drug turnover can be easily ascertained. The sales of  the bulk drugs as such to the institutions etc., will be negligible i.e.,  about 15%, as per the certificate issued by ORG in one of the  cases. It is, therefore, commented  that the contention that the ORG  data does not afford the basis for ascertaining the annual turnover  of the bulk drug, is untenable. 5.4     The High Court, substantially agreeing with the contentions of  the respondentsâ\200\224writ petitioners held that the expression ’turnover’  occurring in Drugs Policy can only mean domestic sales figures and  nothing else. Export sales cannot be included within the ambit of  turnover. The High Court observed that the concepts of ’turnover’  and ’market share’ are interrelated and inter-dependent. The  expression ’turnover’, if interpreted in a contextual and purposive  manner, would not include exports. The extent of usage of the bulk  drug in the country would be determinative of turnover.  By taking  the export sale figures and the value of entire production of bulk  drugs into account, the Central Government had acted contrary to  its own guidelines contained in Drug Policy, 1994. The High Court  then proceeded to discuss whether  each of the drugs concerned  could be brought within the purview of DCPO, 1995 and answered  that question in favour of the writ petitioners. 5.5     Before proceeding further, we may notice that the National  Pharmaceutical Pricing Authority (NPPA) constituted by the  Government of India considered the representation of Bulk Drugs  Manufacturers Association (BDMA) on the subject of  inclusion/exclusion of drugs under DPCO. The NPPA passed a  reasoned order rejecting the representation on dt. 6.4.1998. In that  order, the issues raised by BDMA regarding exclusion of six out of  eight drugs with which we are concerned, were considered by the  said authority. There was however no consideration as regards two  drugs, namely, Doxycycline and Glipizide, probably because the  representation did not cover those two drugs. 5.6     Before we take up the issue of export sales, it is necessary to  understand the true import and expanse of the expression ’turnover’  occurring in clause (i) of para 22.7.2 of the Drug Policy, 1994.  What  is the ’turnover’ contemplated by the said paragraph? Can it be  equated to the value of  imported bulk drug and its production, as  contended by the appellant OR should it be equated to the actual  sales within the country? Should the export sales be included in  turnover? These are the questions to which this Court has to  address itself. 5.7     ’Turnover’ in its ordinary sense connotes amount of business  usually expressed in terms of gross revenue transacted during a  specified period (vide Collins Dictionary).  Broadly speaking, it  represents the value of the goods or services sold or supplied  during a period of time.  The amount of money turned over or drawn  in a business during certain period, is another shade of meaning.  We need not refer to the definition of ’turnover’ in Sales tax and  other fiscal enactmentsâ\200\224reliance on which was placed by some of  the learned counsel as they are not  quite relevant for the purpose  of understanding the expression ’turnover’ occurring in a policy  document. Nor should we seek any assistance from the definition of

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’sale turnover’ occurring in DPCO in a different context and for a  different purpose. Going by its ordinary meaning and the way in  which it is commonly understood in trade and commerce, it is  difficult to equate turnover to the value of stock acquired either by  means of imports or production.  For instance, the entire stock in  trade, say, lying in a godown and not circulated in business, cannot  be regarded as turnover, even giving broadest meaning to the  expression ’turnover’. The reasoning which could be spelt out from  the order passed by NPPA (referred to supra) and in the counter  affidavits filed by the appellants that indigenous production plus  imports furnishes an indicia of the total business in the country in  relation to a particular bulk drug, cannot be accepted.  It is only what  is sold out and marketed that could be legitimately regarded as   turnover of the specified drug. It may be that in the absence of  availability of reliable data regarding sales, the import value and  production value could be the basis to estimate the sale value after  giving due allowance to various factors such as wastage, unsold  stocks etc. But, treating the turnover as nothing but the value of   stock produced or imported during a given period will be doing  violence to the ordinarily accepted meaning of the expression  ’turnover’.  There can be no presumption that the entire stock of  bulk drug produced or imported during the year had been sold out  during that year either in the form of formulations or otherwise.  However, we would like to make it clear that the production and  import statistics are not altogether irrelevant. They are relevant in  the sense that they furnish some basis for estimating the sales  when there is no other reliable and comprehensive data of sales  available. 5.8     The question whether export sales should also be taken into  account in computing the annual turnover needs to be discussed  now. There can be no doubt that the meaning of the expression  ’turnover’  either in its ordinary or legal sense includes  export sales.   But, we must have regard to the terms and objectives of the policy  and try to understand that expression accordingly.  Para 9 of the  Drug Policy, 1994 makes it clear that the high turnover of a drug is  an index of its extent of usage. ’Usage’ has obvious reference to  consumption and consumption within the domestic market. Whether  the drug is extensively used within the country is one of the  considerations kept in view to clamp price control.  The export  potential of the drug or its usage in foreign countries could not have  been the reason to notify the specified drugs for price control.  If  there is any doubt in this regard, it is dispelled by what is stated in  paragraph 10 of the rejoinder affidavit which we quoted supra.   To  repeat, it was stated therein that the intent behind using the word  ’turnover’ has been to determine the extent of usage of a bulk drug  in the country.   It is also pertinent to note that the Govt. of India has  not come forward with any explanation as to why export sales also  should be taken into account in assessing the turnover as per the  criteria laid down in the Drug Policy.  For all these reasons, we are  in agreement with the High Court that the export sales ought to  have been excluded while calculating the turnover.  How far the  exclusion of export sales would make any difference is a different  matter. 5.9     Another grey area which has surfaced in the backdrop of the  Drug Policy, 1994 is whether for the purpose of clause (iii), the  expression ’formulators’ should be confined to single ingredient  formulators or it should extend to multi-ingredient formulators as  well.  The NPPA while rejecting the representation of the Bulk Drug  Manufacturers’ Association, referred to the clarification issued by  the Government of India in its communication dated 10.6.1997  addressed to one of the writ petitioners which is as follows: "The basis of the single ingredient formulation as against  that of the combination formulation (for purpose of  calculating market share), is not only justified on account  of predominance of single ingredient formulation, on

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over all basis, but also vindicates the objective of  "promoting the rational use of drugs in the country"  mentioned in paragraph 1(b) of the "Modifications in  Drug Policy, 1986". The Principle of covering only single  ingredient formulations, for purposes of calculating  market share is a transparent, objective and verifiable  principle and hence suitable for policy issues.  Formulations of a bulk drug, containing one or more  other bulk drug are not comparable in terms of their  sales values. Therefore, it is practically not possible to  apply the criteria relating to market share of a formulator  of a bulk drug on the basis of data of its combination  formulations, across the board, in a transparent,  objective and verifiable manner as required for policy  issues."

It is, therefore, contended by the Union of India that only  single ingredient  formulations have to be taken into account for the  purpose of working out the criterion in clause (iii) and that the  number of single ingredient formulators of the concerned bulk drug  is not discernible from ORG data. Of course, it is the contention of  the respondents that no such distinction can be drawn. It is  contended that such distinction is irrational. In our view, the clarification given by the Government of India  reflects a reasonable view point and it cannot be said that by  adopting such approach, a distorted meaning is given to the  expression ’formulator’  much against the spirit of the policy.  At any  rate, two views are possible and it is not for the Court to decide  which view is preferable. 6.      Before closing the discussion on the controversies  surrounding the criteria evolved in the Drug Policy, there is one  argument of the learned Solicitor General which we would like to  refer to. The learned Solicitor General argued that the expression  ’may’ occurring in clause (iii) of para 22.7.2 of the Drug Policy  confers discretion and flexibility in approach to the Government of  India. Even if a particular bulk drug stands outside price control by  the application of such criteria, the discretion is still left to the  Government to include the drug in the Schedule for good reasons.  This argument cannot be countenanced for the simple reason that it  is not the case of the Government that for any particular reason or  reasons, the bulk drug concerned was brought within the purview of  price control, though the drug qualifies for exclusion under       clause (iii). Even assuming that the discretion is available in terms  of the policy, the factum of exercising such discretion for relevant  reasons should be disclosed. In the absence of such disclosure, the  Court must proceed on the basis that the Government stood by the  criteria and saw no need to deviate therefrom. 7.1    Now it is necessary to advert to the nature of the claim made  by the writ petitioners in relation to each of the bulk drugs, the stand  taken by the Union of India and the conclusions of the High Court. 7.2  Salbutamol:  According to the writ petitioner-Company, the  annual turnover for the year ending March, 1990 was Rs.171.17  lacs based on the ORG data. The sales of formulations in domestic  market has been taken as the basis to calculate the consumption. It  is then multiplied by the notified price prevalent during the relevant  period. It is the further case of the writ petitioner that there were as  many as 24 formulators including the petitioner, none of whom had  the market share of more than 40%. Admittedly, there were more  than five bulk drug producers. The writ petitioner-Company,  therefore, claimed the benefit of exclusion both under clause (i) and  (iii) of para 22.7.2 of the Drug Policy, 1994. The Government of  India took the stand that the bulk drug turnover was Rs.11.50 crores  based on the value of domestic production and imports. Moreover,  there were only seven known formulators of the bulk drug.  Therefore, it is contended that the drug Salbutamol does not qualify

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for exclusion either under clause (i) or (iii). The High Court accepted  the claim of the petitioner-Company on the ground that in the  counter-affidavit filed by the Union of India, there was only a bald  denial and the details given by the writ petitioners were not  controverted. 7.3  Theophylline: The writ petitioners claimed exclusion under     clause (iii). The names of six bulk drug producers and 31  formulators were given in the writ petition. In the counter-affidavit, it  was merely stated that there were less than five known  manufacturers of bulk drug and less than 10 known formulators of  the bulk drug and therefore the drug Theophylline did not qualify for  exclusion under clause (iii). The High Court observed that the  particulars furnished by the petitioner were not effectively  controverted, there being only a bald denial. It was therefore held  that the drug ought not to have been brought under price control. As per the statement furnished by the learned Solicitor  General at the time of hearing, the fact that there were more than  five bulk drug producers, was accepted but the number of  formulators was given as seven. Therefore, the dispute is confined  to the number of formulators, the term ’formulator’ being understood  in the sense in which the Government of India explained in its  clarificatory letter dated 6-4-1998. 7.4  Cloxacillin : The writ petitioners concerned are said to be the  manufacturers of formulations made out of Cloxacillin. There is no  dispute that the annual turnover at the relevant time was much more  than 400 lacs.  The writ petitioners claimed exclusion of the drug  Cloxacillin on the basis of clause (iii) of para 22.7.2. According to  them, there were as many as 16 bulk drug producers and 23  formulators in respect of Cloxacillin and none of the formulators had  more than 40% market share as per the ORG figures for the year  1989-90 (upto March 1990). The High Court accepted the case of  the petitioners on the ground that the factual particulars were not  controverted, but there was only a bald denial in the counter  affidavit filed by Union of India. The counter-affidavit of Union of  India is not found either in S.L.P. paper books or the original record  of High Court. However, the stand of Union of India, as is clear from  the reply dated 6.4.1998 of the NPPA sent to the Bulk Drug  Manufacturers’ Association as well as the Grounds of  SLP is that  the number of single ingredient formulators of the drug was less  than 10. According to the statement furnished by the learned  Solicitor General in the course of the arguments, the number of  formulators were only two. The NPPA clarified the position thus: "The Association has claimed that the highest market share of  single formulator is 21.89%. This claim is based on consideration of  sale values of both single ingredient and combination products of  Cloxacillin. However, the highest market share of single drug  ingredient formulation of a particular formulator works out to 93.07%  which is more than the stipulated level of 40%." Thus, there is controversy regarding the number of  formulators and their market share. 7.5  Cyproflaxacin: The 2nd petitioner in writ petition No. 3449 of  1996, namely, Ranbaxy Laboratories Ltd. produced the said bulk  drug during the relevant period and captively consumed the same in  the manufacture of formulations marketed under the brand name of  Cifran both in India and foreign countries. The petitioner in W.P.No.  1974 of 2000 is Cipla Ltd. Inter alia, it is engaged in the  manufacture and sale of formulations of the drug Cyproflaxacin.  According to Ranbaxy Ltd., the annual domestic turnover of the  drug for the year ending March, 1990 was Rs.238 lacs and  according to the Cipla Ltd., it was Rs.243 lacs excluding the hospital  and institutional sales to the extent of 15%. It is therefore contended  that the drug stands excluded under clause (i) of para 22.7.2 of the  Drugs Policy. It is their further contention that there was no  monopoly situation as contemplated by clause (ii) inasmuch as  there was no single formulator having 90% or more market share in

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the retail trade as per ORG data. The said turnover was calculated  on the basis of estimated consumption purportedly arrived at with  reference to the data relating to sales formulations given in ORG  publication.  The quantum of consumption was then multiplied by  the then prevailing market price. However, a different method of  calculation of turnover was spelt out in the representation dated  7.3.1995 submitted by Ranbaxy Ltd., to Government of India (vide  Ext.B in W.P.No. 3449 of 1996). According to that calculation, the  turnover is Rs.280 lacs. In the counter-affidavit, the turnover given by the writ  petitioners has been disputed. It is stated that ORG data relates to  formulation sales and it does not give data in regard to quantities  and values of bulk drug involved.  It was also stated that  Cyproflaxacin was included in the first schedule on the basis of  criterion in clause (i) since the turnover in 1989-90 was taken as  Rs.990 lacs based on the landed cost of imports of the drug. It is  then stated that the data in regard to indigenous production is not  available. The High Court merely referred to the contention of the writ  petitioners regarding the turnover and accepted the same on the  ground that there was only bald denial in the affidavit in reply.  Surprisingly, the High Court extended the benefit of exclusion under  clause (iii) also, though it was never the case of the writ petitioners.  The High Court stated that there were admittedly 16 bulk drug  producers and 20 formulators, though, no such case was set up by  either of the writ petitioners. In the ORG data furnished by the  petitioner in W.P.No. 3449 of 1996 and in the representation  submitted to the Government of India, only the names of seven  formulators was mentioned. Thus, there was an obvious error in the  High Court’s judgment.  The plea of discrimination which was raised  for the first time in the rejoinder affidavit filed in W.P.No. 3449 of  1996 also found favour with the High Court. 7.6  Norfloxacin : The writ petitioner seeks exclusion from the  purview of DPCO on the basis of clause (iii) of para 22.7.2 of the  Drugs Policy. It is the case of the petitioner that there were at least  28 bulk drug manufacturers and 20 formulators and no single  formulator had more than 40% market share as per the ORG  figures. The names were given in the writ petition. However, the  stand taken in the counter- affidavit filed by the Government of India  is that there were only three manufacturers of the bulk drug and the  ORG data does not disclose the number of bulk drug producers. As  regards the formulators, the stand taken is that the number of single  ingredient formulators using the said bulk drug is not discernible  from the ORG data. It is, therefore, contended that the twin  conditions of a minimum of five bulk drug producers and at least 10  formulators are not satisfied. The High Court accepted the plea of  the writ petitioner on the ground that there was only a bald denial in  the counter-affidavit and no specific particulars were given to  controvert the contention of the petitioner. In the order passed by  NPPA in response to the representation of Bulk Drug  Manufacturers’ Association, it is stated that as per the records  available, there were only three bulk drug manufacturers in the  country during 1989-90. However, the names were not furnished  either in this document or the counter affidavit. As per the ORG data, the market share of the formulation sold  by the petitioner-Company was 39.56% (vide annexure at page 38  of the original writ petition record) which, as pointed out by NPPA, is  technically lower than 40%. We may add that it is perilously close to  40%. It should also be noted that the writ petitioner did not furnish  any details of production to show that the bulk drug manufacturers  mentioned by it or at least five amongst them actually produced the  bulk drug. 7.7  Doxycycline : It is the case of the writ petitioner that it  manufactures and sells single ingredient formulation containing the  bulk drug Doxycycline in a concentration of 100 mg per capsule

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under the brand name of Doxy-1. The annual turnover of the bulk  drug Doxycycline, according to the writ petitioner, was Rs. 316 lacs.  It is seen from the tabular statement appended to Annexure-A to the  writ petition at pages 85-86 of the original record, the petitioner  arrived at the total domestic consumption of the bulk drug with  reference to the ORG data pertaining to sales of formulations in the  market. It is the further case of the writ petitioner that as per ORG  data, there were at least 19 formulators producing Doxycycline  based formulations and none of them had more than 40% of market  share in retail trade. Therefore, the petitioner claimed that the bulk  drug Doxycycline should have been excluded from the purview of  price control in terms of under clause (i) & (iii) and that monopoly  situation contemplated by clause (ii) has no application because no  single manufacturer had 90% or more market share in retail trade. The stand of the Government has been that the turnover of  Doxycycline was above 400 lacs during the relevant period and  therefore it comes under price control. Further, it is their case that  clause (ii) has no application because the turnover is above 400  lacs. It is also averred in the counter affidavit that the retail trade  sale data is not relevant since the need to calculate  market share  does not arise. Moreover, since undisputably, there is only one  manufacturer of the bulk drug, i.e., Ranbaxy Limited, the exclusion  criteria laid down in clause (iii) of para 22.7.2 is not applicable. In paragraph 89 of the judgment under appeal, the High Court  having merely referred to the arguments of the learned counsel for  the petitioner, accepted  the case of the petitioner on the ground  that in the affidavit-in-reply filed by the Government, there was only  bald denial and that the particulars were not controverted.   Moreover, the High Court was under an apparent misapprehension  that the Writ Petitioner sought the benefit of exclusion under     clause (iii) also. The core controversy, as already noticed, is  regarding the quantum of turnover.  The Union of India took the  stand that the turnover was above 400 lacs.   In the statement filed  by the learned Solicitor-General at the time of argument, the figure  was given as 471.77 lacs.  However, the appellant did not furnish  any details as to the calculation of turnover. 7.8  Glipizide: The writ petitionerâ\200\224USV Limited is a  manufacturer  of the bulk drug ’Glipizide’ which is sold under the brand name of  Glynase. It does not appear that there was any other producer of  bulk drug during the relevant period.  It is the case of the writ  petitioner that the annual turnover for the year ending 31st March,  1990 was only Rs. 82 lacs and that clause (ii) is not therefore  attracted. The writ petitioner estimated the turnover figure by  arriving at the consumption of the bulk drug in various formulations  and by multiplying the same by the MRP (Maximum Retail Price).  The ORG data relating to sales of formulations was furnished. The stand of the Central Government is that production data  was not available for the year 1989-90 and the turnover of the bulk  drug was determined by the expert group on the basis of the landed  cost of imports during the year to the tune of Rs.322.50 lacs. As  there was only one formulator as reported in ORG survey of March,  1990, monopoly situation was considered to be existing "since one  formulator was having 100% market share as on 31.3.1990".  Disputing the assertion of the writ petitioner that as per ORG data  furnished in Ext.F to the writ petition, there was no single formulator  having 90% or more market share in retail trade, it is pointed out in  Paragraph (iv) of the counter-affidavit that Ext.F includes  formulations based on the bulk drugs other than Glipizide. It is  further stated in the same para of the counter that there is only one  formulation, namely, Glynase based on Glipizide and in respect of  that, the writ petitioner had 100% market share. Thus, the dispute mainly centers round the quantum of  turnover. The High Court observed that "even assuming that the  petitioners were the sole manufacturers of the said drug, as the

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turnover was below Rs.100 lacs, the monopoly situation, as  envisaged in para 22.7.2 (ii) of Drug Policy, 1994 does not apply  and as such the said drug ought to be kept out of the purview of  DPCO, 1995". The plea of discrimination between this drug and  another anti- diabetic drug known as Insulin also found favour with  the High Court. 8.1     We are of the view that the approach of High Court in  considering the question of applicability of criteria laid down in the  Drugs Policy in relation to each of the above drugs is not correct  and the High Court failed to address itself to various crucial aspects  as indicated below: 8.2     ORG data does not give full and clear picture of the turnover  of bulk drug. ORG data relates to sales of formulations made either  exclusively out of the bulk drug or in combination with other drugs.  The formulations containing the particular bulk drug either wholly or  in part reach the consumers through normal trade channels. The  particulars of sales of such formulations entering the retail market  are compiled by ORG. Bulk drug sales as such are not covered by  ORG data. At best, from ORG data, it may be possible to deduce  the consumption of bulk drug on estimated basis especially if it is  the only drug used in that formulation.  Moreover, direct sales to  institutions such as hospitals and Government organizations are not  reflected in ORG compilation. According to the certificate filed in  some of the cases, such sales would be about 14%. It is also borne  out by the same certificate issued by the Associate Research  Director of ORG (Ext. ’C’ to W.P.No. 1974 of 2000 and Annexure-I  to written submissions) that out of this 86%, the ORG data covers  about 90% of the retail market sales. This is what the certificate  says:â\200\224 "The Retail Pharma Market in India contributes to 86%  of the total market and the remaining 14% towards  Hospital and Institutional sales.

I would like to confirm that out of this 86% of Retail  Pharma Market, ORG-MARG covers around 90%  through the Retail Store Audit (RSA)."

8.3     One more aspect which deserves notice is that from the ORG  data, it may not be possible to ascertain whether the formulation is  made up of single ingredient of the bulk drug or it has multi-  ingredients. We have held that the Government of India’s view that  single ingredient formulators alone should be taken into account for  the purpose of the criteria in clause (iii) of para 22.7.2 of Drugs  Policy cannot be said to be against the policy or otherwise  unreasonable. 8.4     Sales of bulk drugs effected during the year by bulk drug  producers including some of the respondents herein would have  furnished the best indicia of domestic sale turnover of bulk drug.  But, those details were not disclosed. Secondly, if the bulk drug  produced was consumed by any bulk drug producer or importer and  the drug was sold in the form of formulations, the statistics  regarding the quantum of bulk drug utilized in such formulations and  the value thereof must have been within the knowledge or reach of  writ petitioners and there is no good reason why they should  withhold all this relevant information and harp on ORG data. There  is no need to resort to guess-work when the actual figures are  available at the doorsteps of the respondents. Moreover, some of  the respondents have arrived at the estimates by varying methods  without reference to actual data available with them. For instance, in  the case of the drug Cyproflaxacin, we have adverted to different  methods of calculation given by the writ petitioners which yield  different results. If we go by the estimates of turnover made by the  respondents, there is vast difference between the value of the bulk  drug worked out by them and the sale value of formulations.  Moreover, in relation to some of the drugs, there is vast variation

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between the quantity produced and imported and the quantity said  to have been utilized in formulations sold in the market. These  factors should have put the High Court on guard to subject the  petitioners’ version to close and critical scrutiny. 8.5     When the burden was on the writ petitioners to substantiate  their plea of violation of Article 14 and when the plea predominantly  rested on facts and figures, the High Court should have examined  the intrinsic worth and credibility of the version put forward with  regard to the turnover figures. The High Court oversimplified the  whole issue by addressing itself to the only question whether there  was effective rebuttal of the averments by the Union of India. The  callousness on the part of the officials concerned in not meeting the  points raised squarely and leaving the scope for ambiguity should  not, in our view, be a ground to accept whatever is falling from the  writ petitioners. The material placed before the Court should have  been critically examined before reaching a conclusion that Article 14  is violated. The High Court should have also examined whether the  writ petitioners withheld the relevant data which they were in a  position to produce and if so, what would be its effect. None of  these aspects received attention of the High Court. Before striking  down the legislation, the High Court should have realized that those  who challenged the legislation should lay firm factual foundation in  support of their plea. The complaint of violation of norms set out in  the policy leading to the alleged infraction of Article 14 depends, in  the ultimate analysis, on facts and figures. As already observed,  ORG data is neither comprehensive nor conclusive and moreover in  regard to some of the drugs, the data does not in unequivocal  terms, support the case of the writ petitioners. In such a situation,  further probe and analysis was required which the High Court failed  to do. The version of writ petitioners regarding the quantum of  turnover was accepted to be correct on its face value. That apart, in  the light of the clarification given by us that single ingredient  formulators alone could be legitimately taken into account in the  context of clause (iii), the need for reconsideration by the High Court  becomes inevitable. We are, therefore, of the view that the crucial  issues regarding the applicability of  criteria laid down in para 22.7.2  of the Drugs Policy require reconsideration by the High Court from  various angles indicated supra in the light of the legal position  enunciated and the observations made in this judgment. 8.6     We have broadly indicated the aspects on which the High  Court could have focused its attention before reaching the  conclusion it did. Nothing precludes the High Court from having  regard to other aspects or material which it considers relevant to  test the correctness of the writ petitioners’ claims. However, we  would like to clarify one thing. If, on reconsideration, the turnover of  any drug is found to be very close to the figureâ\200\224400 or 100 lacs, as  the case may be, the relevant criterion must be deemed to have  been satisfied. As we said earlier, mathematical accuracy is not  what is required. 8.7     There is one more point which we have to deal with, i.e., the  alleged discrimination between one drug and another. The High  Court upheld such plea raised in rejoinder affidavit in relation to the  drugs ’Cyproflaxacin’ and ’Glipizide’. We unhesitatingly vacate the  findings of the High Court in this regard because we are of the view  that the reasons given by the High Court for upholding such plea  are too tenuous to merit even prima facie acceptance. 8.8      In the case of Cyproflaxacin  in W.P.No. 3449 of 1996 it was  contended that two bulk drugs, namely, Mefenamic Acid and  Amikacin Sulphate were wrongly and arbitrarily deleted from the  DPCO, 1995. It is difficult to comprehend as to how there could be  infraction of Article 14 merely because a few bulk drugs were  excluded from the purview of DPCO on a reconsideration. The  exclusion of some drugs, even if such exclusion is unjustified,  cannot be a ground to claim exclusion of other drugs on the so  called  principle of parity. Logically, if the High Court’s view has to

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be accepted, the entire Schedule should be invalidated for the  simple reason that one or two drugs, which were not eligible for  exclusion in the light of the policy guidelines were excluded. It would  then lead to a startling result  frustrating the very objective of  regulating the price of essential drugs.  That apart, the turnover  figures of the said two drugs furnished by the writ petitioner and  referred to by the High Court, do not establish that they fall within  the policy guidelines. Regarding  Mefenamic Acid, what all is stated  in paragraph 16 of the rejoinder affidavit is that the turnover of this  drug has been "over Rs.4 crores between 1988-89 to 1991-92 and  yet it was excluded for reasons not known to the petitioners".  Nothing has been stated as to how the turnover for the relevant year  was arrived at. No information was furnished regarding the number  of bulk drug producers and formulators and their market share.  Evidently, the petitioner made only a halfhearted attempt to put  forward a plea of discrimination, but, it succeeded in its attempt.  Coming to the other drug  Amikacin Sulphate, even according to the  petitioner, the import value of the drug in 1989-90 was Rs.3.5  crores, which is much below the limit of Rs.4 crores and even if  there was a single formulator having a market share in excess of  40%, that does not make any difference. That apart, the  Government of India clarified in one of the counter affidavits filed in  the High Court that on the scrutiny and verification of details  submitted by the manufacturers, these two drugs were  subsequently deleted from the First Schedule having regard to the  criteria laid down in the policy. We have, therefore,  no hesitation in reversing the conclusion  of the High Court that the exclusion of the said two drugs from  DPCO  amounted to hostile discrimination.  8.9    Regarding  ’Glipizide’, the plea of discrimination between this  drug and another anti-diabetic drug known as Insulin, found favour  with the High Court. The High Court, in paragraph 90 of the  judgment referred to the argument that Insulin having 441 lacs  turnover as on 31st March, 1990 was included in DPCO of 1995, but  subsequently excluded from price control and held that there was  discrimination on that account. The High Court evidently proceeded  on an erroneous assumption that Insulin was excluded from the  schedule. The averments in paragraph 22 of the writ petition  No.5219/1996 are otherwise. The plea of discrimination was aimed  at the drug  known as Glibelclamide, which was excluded from the  DPCO of 1987 and continued to remain excluded from the DPCO of  1995. The respondent did not even aver that the said drug had the  turnover of more than 100 lacs and therefore it would fall within the  mischief of clause (ii). On the basis of a bald plea, the infraction of  Article 14 ought not to have been countenanced. The finding of the  High Court in this regard is palpably wrong. 9.      We now summarize the conclusions as under: 1.      Where the Central Government as the delegate of legislative  power announces a rational policy in keeping with the  purposes of enabling legislation and even lays down specific  criteria to promote the policy, the criteria so evolved become  the guide-posts of its legislative action.  While classifying the  drugs for the purpose of price control, it is not open to the  Government to flout or debilitate the set norms which  it  professed to follow in the interest of transparency and  objectivity. Otherwise, there will be an element of arbitrariness  and the delegated legislation will not withstand the test of  Article 14. 2.      The expression ’turnover’ in Drug Policy, 1994 represents the  sale value of bulk drug sold as such or in the form of  formulations. 3.      Export sales should not be taken into account while computing  turnover. 4.      The sum total of production and imports of bulk drug cannot  be equated to turnover, though they are not altogether

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irrelevant in calculating the turnover. 5.      ORG data does not  give exhaustive account of turn over of  bulk drug.  It may furnish the basis for estimating the turnover,  but is not the sole guide. 6.      For the purpose of criterion No.(iii) of the Drug Policy, the  single ingredient formulators alone ought to be taken into  account as clarified by the Govt. of India. 7.      Burden lies on those who challenge the legislation on the  ground of violation of Article 14 to make out their case by  furnishing all the relevant material which is within their reach  and knowledge.  There should be frank  disclosure of material  facts, more so, when the plea is founded on certain factual  aspects.  The mere  vagueness or lack of clarity in the stand  taken by the Union of India does not by itself advance the  case of the writ petitioners. 8.      The plea of writ petitioners ought to have been tested and  subjected to scrutiny in the light of all relevant factors instead  of merely considering  whether the particulars furnished by the  petitioners were effectively controverted or not.  Such an  approach of the High Court  is wholly impermissible while  deciding the validity of legislationâ\200\224plenary or delegated, from  the stand point of Article 14. 9.      The plea of discrimination between one drug and another is  unfounded and should not have been accepted by the High  Court. 10.       In the result, the judgment of the High Court is set aside and  the writ petitions out of which these appeals arise shall stand  restored to the file of the High Court and the High Court will have to  consider afresh the relevant aspects concerning the criteria laid  down in para 22.7.2 of the Drug Policy, 1994 in relation to each  drug, having due regard to the observations made in the judgment.   The High Court may endeavour to expedite hearing of the writ  petitions. 11.     The appeals are accordingly allowed without costs. We also  consider it just and proper to give liberty to the appellant and the  concerned statutory authorities to recover 50% of the ’over  charged’ amounts pending fresh determination by the High Court.  Accordingly, we direct stay of recovery of 50% of the ’overcharged’  amount subject to the payment of remaining 50% within the period  of four weeks from the date of communication of the amount  payable by each of the writ petitioners.