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PETITIONER: INDIAN DRUGS & PHARM. LTD. & ORS.

       Vs.

RESPONDENT: PUNJAB DRUGS MANUFACTURERS ASSOCIATION & ORS.

DATE OF JUDGMENT:       26/03/1999

BENCH: D.P.Wadhwa, N.Santosh Hegde.

JUDGMENT:

SANTOSH HEGDE, J.

C.A. NOS. 4550-51/89 :

     In  these civil appeals, identical questions arise for our  consideration.   Before  the  High Court  of  Punjab  & Haryana  in civil Writ Petition No.6144/87, the  petitioners challenged  the  constitutional  validity   of  the   policy decisions  of  the Government of Punjab  whereby  directions were  issued  to  the purchasing  authorities  that  certain medicines  used in the Government hospitals and dispensaries were  to be purchased from public sector manufacturers only. The High Court was pleased to allow the petition and quashed the  said  policy  decision by a  judgment  dated  3.6.1988. Being  aggrieved by the said judgment and order of the  High Court,  the  State of Punjab has preferred C.A.   No.3723/88 before this Court and some of the aggrieved respondents have preferred  C.A.  No.3744/88.  The writ petitions challenging almost  similar  policy  decisions  taken by  the  State  of Rajasthan were also filed before the High Court of Rajasthan in  D.B.  Civil W.P.  No.697/88 and other connected matters. The  High  Court  of Rajasthan  negatived  the  petitioners’ contention  and  dismissed  the  said  writ  petition.   The aggrieved  petitioners  have   filed  C.A.   Nos.4550-51/89. Since  respondents in C.A.  Nos.3723/88 and 3744/88 who were the  original  writ  petitioners before the  High  Court  of Punjab  & Haryana, are not represented before us and we have heard  only the counsel for the appellants in those  matters and  whereas all the contesting respondents in CA  Nos.4550- 51/89  i.e.  the matters arising out of the judgment of  the Rajasthan High Court are represented before us through their counsel  and  we have heard the arguments of both sides,  we deem  it proper that we should deal with the Rajasthan cases first.

     As  stated  above, C.A.  Nos.4550-51/89 are  preferred against  the  judgment  of the Rajasthan  High  Court  dated 24.11.1988  made in D.B.  civil Writ Petition No.697/89  and other  connected  matters.   In these  writ  petitions,  the petitioners  had challenged the policy decision of the State of  Rajasthan  dated 10.3.88 whereby the State of  Rajasthan had  decided  to purchase certain medicines for use  in  the hospitals,  dispensaries  and other institutions run by  the

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State  only from public sector companies or the companies in which  State  of  Rajasthan had substantial  interest.   The challenges  in  these petitions were based primarily on  the ground  that it created a monopoly in favour of these public sector  companies  which is in violation of Articles 14  and 19(1)(g)  of  the  Constitution of India, and  also  on  the ground  that  these  policies  having been  made  under  the executive   power   derived  under   Article  162   of   the Constitution,  the  same being not a law, is opposed to  the provisions  of Article 19(6) of the Constitution.  The  High Court  of  Rajasthan  rejected the contention  of  the  writ petitioners  holding  that  in fact there  was  no  monopoly created  in  favour of the public sector undertakings.   The High  Court  also came to the conclusion that if at all  the policy  only  restricts  the   Government  departments  from purchasing  certain  drugs from public  sector  undertakings only,  and  the  same cannot be equated with a  monopoly  as contemplated  under  Section 19(6) of the Constitution.   On facts,  the  High Court came to the conclusion that  out  of about  306  items  of  drugs,  the  Government  institutions purchased  about  286  drugs from private  manufacturers  or their  dealers and only 26 drugs were purchased from  public sector  undertakings.   Even in regard to the  complaint  of disparity  in  rates  the High Court on facts  came  to  the conclusion  that  there  was  no   substance  in  the   said arguments.

     In  these appeals before us, learned counsel appearing for  the appellants have reiterated the arguments that  were addressed  before  the High Court.  The main contentions  of the  appellants  are :  (a) that by the impugned policy  the State  has created a monopoly in favour of the public sector undertakings  and since the said monopoly is created not  by an  Act  or a Statute but by an executive order the same  is violative   of   Articles   19(1)(g)   and  19(6)   of   the Constitution;  (b) that the directions to purchase medicines only  from public sector undertakings would amount to an act of  discrimination.  Hence, it is in violation of Article 14 of the Constitution.

     On   behalf   of  the   State  and  other   contesting respondents,  it  was contended that there was  no  monopoly created  under the impugned policy of the State  Government. Therefore,  the  question of offending Article  19(1)(g)  or 19(6) does not arise, and the directions to purchase certain medicines from the public sector undertakings for use in the Government hospitals and dispensaries would not amount to an act  of  arbitrariness.   Hence, there is  no  violation  of Article  14  of  the  Constitution.   We  have  perused  the impugned  policy  whereby the State Government had  directed the authorities concerned to purchase certain medicines only from  public  sector undertakings or their dealers.  In  our opinion, the impugned policy only directs that certain drugs are  to be purchased from the specified manufacturers.  This does  not preclude the other manufacturers or their  dealers from either manufacturing or selling their products to other customers.   It is of common knowledge that the  requirement of  drugs  is not the need of the Government  hospitals  and dispensaries  only.   As a matter of fact, the need  of  the Government  hospitals  and  dispensaries   must  be  only  a fraction  of the actual demand in the market which demand is open  to  be met by the manufacturers like  the  appellants. Monopoly   as  contemplated  under   Article  19(6)  of  the Constitution  is something to the total exclusion of others. Creation  of  a  small captive market in favour of  a  State

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owned  undertaking  out  of a larger market  can  hardly  be termed as creation of monopoly as contemplated under Article 19(6)  of  the  Constitution, more so because  this  captive market   consists   only  of   State  owned  hospitals   and dispensaries.   Thus, on facts, we agree with the High Court that  there  is no monopoly created by the impugned  policy. We  are  supported  in  this view of ours  by  a  catena  of decisions of this Court.  A Constitution Bench of this Court in  the  case of Rai Sahib Ram Jawaya Kapur & Ors.  V.   The State  of Punjab (1955 2 SCR 225) while dealing with similar restrictions  imposed  by the State on the purchase of  text books held that a publisher did not have the right to insist on  any  of their books being accepted as text books.   This Court  held  :   "So the utmost that could be said  is  that there  was  merely  a chance or prospect of any or  some  of their  books being approved as text books by the Government. Such chances are incidental to all trades and businesses and there  is no fundamental right guaranteeing them.  A  trader might be lucky in securing a particular market for his goods but he loses that field because the particular customers for some reason or other do not choose to buy goods from him, it is  not open to him to say that it was his fundamental right to  have  his  old  customers   for  ever."  Further,  while negativing  the  contention of the petitioners in that  case based  on  Article 19(1)(g) of the Constitution,  the  Court came  to  the  conclusion  that  the  question  whether  the Government   could   establish   a  monopoly   without   any legislation  under  Article 19(1)(6) of the Constitution  is altogether immaterial.

     In  Naraindass  Indurkhya v.  The State of M P &  Ors. (1974  4  SCC 788) another Constitution Bench of this  Court held  following the judgment in Rai Sahib Ram Jawaya Kapur’s case  (supra) that there is no right in a publisher that any of  the  books  printed  and  published  by  him  should  be prescribed  as  text books by the school authorities  or  if they  are once accepted as text books they cannot be stopped or discontinued in future.  As a matter of fact, in the said case,  this  Court  approved  the action  of  the  State  in restricting the sale of text books not only to the State run schools  but  also  all   other  institutions  which  sought recognition  from the Government, on the ground that one  of the  main conditions on which recognition is granted by  the State  Government is that the school authorities must use as text  books only those which are prescribed or authorised by the  State  Government.   In  this case as well  as  in  Ram Jawaya’s  case  (supra),  the  Court  further  accepted  the authority  of the State to issue directions restricting  the sale  of the text books by an executive order under  Article 162  of  the  Constitution on the basis that  the  executive power  of  the State extends to all matters with respect  to which the State Legislature has power to make law and in the absence  of  there  being any law, the said field  could  be covered by an executive action.

     While  dealing  with  the right of a State  in  giving preference  to  cooperative  societies  in  the  matter   of allotment  of  fair price shops, this Court in the  case  of Sarkari  Sasta Anaj Vikreta Sangh, Tahsil Bemetra & Ors.  V. State of M P & Ors.  (1981 4 SCC 471) held :

     "Cooperative  societies play positive and  progressive role  in the economy of our country and most surely, in  the fair  and  effective distribution of essential  articles  of food.  There certainly was a reasonable classification and a

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nexus  with the object intended to be achieved, which was  a fair  and  assured supply of rations to the  consumer.   The fundamental  right of traders like the petitioners to  carry on  business  in  foodstuffs was in no way  affected.   They could  carry  on  trade in foodstuffs without  hindrance  as dealers;   only,  they  could not run fair  price  shops  as agents of the Government.  No one could claim a right to run a  fair price shop as an agent of the Government.  All  that he  could claim was a right to be considered to be appointed as  an agent of the Government to run a fair price shop.  If the  Government took a policy decision to prefer  consumers’ cooperative societies for appointment as their agents to run fair  price  shops,  in  the light of  the  frustrating  and unfortunate  experience  gathered in the last  two  decades, there can be no discrimination."

     The  above quoted view of this Court, in our  opinion, answers  the contentions raised on behalf of the  appellants herein   with   reference  to   Article  19(1)(g)   of   the Constitution.   In the case of Hindustan Paper Corpn.   Ltd. v.   Government  of  Kerala & Ors.  (1986 3 SCC  398),  this Court  had held that it is possible in appropriate cases  in order  to  place an industry owned by the Government  on  an enquiring  basis in the national interest, some  concessions could  be shown to it.  It further held that the  preference shown  to  Government companies cannot be considered  to  be discriminatory as they stand in a different class altogether and the classification made between Government companies and others  for  the purpose of the Act is a valid  one.   While dealing  with  the  preference given by  the  Government  of Kerala  to the institutions run by the cooperative societies in  supply of pump sets, this Court in Krishnan Kakkanth  v. Government  of  Kerala & Ors.  (1997 9 SCC 495) quoted  with approval the following passage from another judgment of this Court in Saghir Ahmad v.  The State of U.P.  & Ors.  (1955 1 SCR 707) :

     "Under  clause (1)(g) of Article 19, every citizen has a  freedom and right to choose his own employment or take up any  trade  or calling subject only to the limits as may  be imposed  by the State in the interests of public welfare and the  other  grounds mentioned in clause (6) of  Article  19. But  it  may  be emphasised that the Constitution  does  not recognise   franchise  or  rights  to  business  which   are dependent  on  grants by the State or business  affected  by public interest."

     In   Oil  &  Natural  Gas   Commission  &   Anr.    V. Association of Natural Gas Consuming Industries of Gujarat & Ors.  (1990 Supp SCC 397), this Court upheld the disparities in   price  permitted  between   supply  to  public   sector undertakings  and  private  industries.   It  held  that   a favourable   treatment  of  a  public  sector  organisation, particularly  ones  dealing  in   essential  commodities  or services  would not be discriminatory.  It is clear from the various  judgments  referred to above that a decision  which would  partially  affect  the sale prospects of  a  company, cannot  be equated with creation of monopoly.  In Ram Jawaya Kapur’s  and  Naraindass’s  cases (supra)  the  Constitution Bench  also held that the policy restrictions, as  discussed above,  can be imposed by exercise of executive power of the State under Article 162 of the Constitution.  Therefore, the contention  of  the  appellants  in regard  to  creation  of monopoly  and  violation  of  the  fundamental  right  under

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Articles  19(1)(g)  and  19(6) should fail.   The  judgments cited  above also show that preference shown to  cooperative institutions  or public sector undertakings being in  public interest,  will not be construed as arbitrary so as to  give rise  to  a  contention of violation of Article  14  of  the Constitution.   We  have noted above that this Court in  the cases   of  Oil  &  Natural   Gas  Commission  &  Anr.    V. Association of Natural Gas Consuming Industries of Gujarat & Ors.   (1990  Supp SCC 397), Krishnan Kakkanth  (supra)  and Hindustan  Paper  Corpn.  Ltd.  v.  Government of  Kerala  & Ors.  (1986 3 SCC 398) has held that the preference shown to cooperative institutions or public sector undertakings being in public interest, will not be construed as arbitrary so as to  give rise to a contention of violation of Article 14  of the  Constitution.   In this case, the High Court  on  facts also  came to the conclusion that the discrimination alleged by the petitioners before it has not been established and we find  no  reason  to differ from the said  conclusion.   The appellants  in  support  of their contention relied  on  the judgment of this Court in the case of R D Shetty v.  I A A I (AIR  1979 SC 1628) for the proposition that the  Government cannot  pick and choose persons for the purpose of  awarding contracts.   We do not think this judgment supports the case of the appellants in any manner inasmuch as in the said case this  Court  was dealing with the action of the  State  with reference  to picking and choosing of private individuals to award  contracts and was not dealing with the case in  which State  chose  to  make a classification  between  a  private manufacturer   and  a  public   sector   undertaking.    The appellants also relied upon a judgment of the Karnataka High Court in A.C.  Chandrakumar & Ors.  V.  State of Karnataka & Ors.   (1991 2 KLJ 365) wherein the said High Court had held that  a change of policy directing the purchase of specified drugs  only from public sector undertakings was violative of Article   14  of  the   Constitution.   We  have   carefully considered the reasoning adopted by the Karnataka High Court in  the  said judgment.  In our opinion, the High  Court  in that  case has not considered the various judgments referred to  by  us  hereinabove, some of which are  of  Constitution Bench  of  this Court, which has upheld  the  classification made   between  private  undertakings   and  public   sector undertakings.   Therefore,  we are of the view that the  law laid  down in the said case runs contrary to the judgment of this Court relied upon by us.

     For  the above reasons, we are of the opinion that the High Court was right in coming to the conclusion that by the impugned  policy, there was no creation of any monopoly  nor is  there any violation of Articles 14, 19(1)(g) or 19(6) of the  Constitution.   In  view of the above, we  are  of  the opinion  that  these  appeals should fail and the  same  are dismissed accordingly.  No costs.

     CA Nos.3723/88 & 3744/88 :

     These  appeals are preferred against the judgment  and order  of the High Court of Punjab & Haryana dated  3.6.1988 made  in  civil W.P.  No.6144/87 wherein the High Court  was pleased  to allow the writ petition filed by the respondents in  these civil appeals, quashing the policy decision of the State  of  Punjab  whereby  the   State  had  directed   its authorities concerned to purchase certain medicines from the public  sector  undertakings  only.  We have today  in  C.A.

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Nos.4550-51/89 held that a similar policy decision issued by the  State  of  Rajasthan  does not amount  to  creation  of monopoly  nor  is  there  any violation  of  Article  14  or 19(1)(g)  of the Constitution.  The facts giving rise to the writ  petitions before the Punjab & Haryana High Court  from which the above civil appeals have arisen being the same, we allow  these  civil appeals and set aside the  judgment  and order of the Punjab & Haryana High Court dated 3.6.1988 made in  civil  W.P.   No.6144/87.  Consequently, the  said  writ petition stands dismissed.  No costs.