# 4 S.C.R. 50 UNION OF INDIA v. GLAXO INDIA LTD. & ANR

- **Citation:** [2011] 4 S.C.R. 50
- **Court:** Supreme Court of India
- **Decided:** 2011-03-30
- **Case number:** Civil Appeal No. 6497 of 2002
- **Bench:** R.V. Raveendran, H.L. Dattu
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/4-s-c-r-50-union-of-india-v-glaxo-india-ltd-anr-27628
- **Pages:** 45

## Headnote

DRUG (PRICE CONTROL) ORDER, 1979 :
c
Paragraphs 3, 12, 13 and 27 - Price Fixation of bulk
drugs - Central Government fixing the price of scheduled bulk
drugs by Notification dated 2.1.1989 superseding the earlier
Notification dated 12.5.1981 - Demand raised towards the
difference between the formulation prices fixed in the price
0
fixation orders and the actual prices charged by company for
the period 12.5.1981 to 25.8.1987 to be deposited in DRUG
PRICES EQUILASITAION ACCOUNT - Held : When fresh
notification was issued on 2. 1. 1989, the earlier notifications
were superseded and, therefore, it cannot be said that they
become non est for all purposes - The earlier notific.ation,
E fictionally must be held to have subsisted and were operative
from such points of time of commencement upto the date it
was superseded -The Central Government is well within its
rights to raise demands for making deposit into DPEA on the
basis of prices shown in Notification dated 20. 11. 1986 - The
F demand raised by the Central Government is confirmed.
Para 27 - Review - Concept of - Explained - Held :
Once a review petition filed by the manufacturer of a bulk drug
is considered and a fresh notification is issued, the same
G would be prospective and it does not relate back to the
notification fixing the price of bulk drugs issued earlier -
Administrative Law - Subordinate Legislation.
H
50
.... -
UNION OF INDIA v. GLAXO INDIA LTD. & ANR.
51
DRUG PRICES EQUALISATION ACCOUNT:
A
Drug manufacturing company required to deposit in
DPEA the excess of the common selling price over retention
price -Held :The provision is a beneficial one -This provision
applies equally both to indigenously manufactured drugs as
8
well as the drugs imported so as to maintain uniformity in the
price of bulk drug.
WORDS AND PHRASES :
Expression 'supersession' - Connotation of in the c
context of drugs price fixation.
The respondent-company was engaged in
manufacture and sale of three bulk drugs, namely, BA,
BV and BP and formulations based thereon. The Central
Government, in exercise of power under Para 3(1) of the
D
Drug (Price Control) Order, 1979 (DPCO, 1979) fixed the
maximum price of the three bulk drugs by its order dated
12.5.1981. The respondent-company challenged the order
before the High Court in CWP No. 1551 of 1981. The High
Court stayed implementation of the order dated 12.5.1981
E
in view of the undertaking of the respondent company
to maintain the prices of the bulk drugs and its
formulations prior to the notification dated 12.5.1981, and
directed the parties for settlement in view of the petition
for review of the order dated 12.5.1981 filed by the
F
respondent company. The Central Government re-fixed
the price of the bulk drugs by order dated 20.11.1986 with
retrospective effect from 12.5.1981. The High Court
disposed of the writ petition by its judgment dated
31.8.1987. It did not quash the price fixation order dated
G
20.11.1986, but directed the respondent company to file
review petition before the Central Government. The
Central Government constituted 'Murthy Committee'
which gave its report dated 12.10.1988.
H
52
SUPREME COURT REPORTS
(2011] 4 S.C.R.
A
The Central Government, issued price fixation order
dated 2.1.1989 under DPCO 1989 fixing the price for the
three bulk drugs higher than that fixed under order dated
20.11.1986, and, by letters dated 18.6.1990 and 16.11.1990
raised a demand of Rs. 71.2 crores, as difference between
B the formulation prices fixed and the actual price charged
by the company for the period 12.5.1981 to 25.8.1987, to
be deposited in Drug Prices Equalisation Account
(DPEA). The company filed another writ petition (CWP No.
2170/90). The High Court allowed the writ petition holding,
c inter alia, that the demands raised were contrary to the
directions of the High Court in earlier writ petition (CWP
No. 1551/81); that the price fixation order was
retrospective in its operation and related back to the
order dated 12.5.1981; and that

## Text

_Characters 0–39,897 of 87,069. This is a partial read: ask again with offset=39897 for what follows._

A
B
[2011) 4 S.C.R. 50
UNION OF INDIA
v.
GLAXO INDIA LTD. & ANR.
(Civil Appeal No. 6497 of 2002)
MARCH 30, 2011
[R.V. RAVEENDRAN AND H.L. DATTU, JJ.]
DRUG (PRICE CONTROL) ORDER, 1979 :
c
Paragraphs 3, 12, 13 and 27 - Price Fixation of bulk
drugs - Central Government fixing the price of scheduled bulk
drugs by Notification dated 2.1.1989 superseding the earlier
Notification dated 12.5.1981 - Demand raised towards the
difference between the formulation prices fixed in the price
0
fixation orders and the actual prices charged by company for
the period 12.5.1981 to 25.8.1987 to be deposited in DRUG
PRICES EQUILASITAION ACCOUNT - Held : When fresh
notification was issued on 2. 1. 1989, the earlier notifications
were superseded and, therefore, it cannot be said that they
become non est for all purposes - The earlier notific.ation,
E fictionally must be held to have subsisted and were operative
from such points of time of commencement upto the date it
was superseded -The Central Government is well within its
rights to raise demands for making deposit into DPEA on the
basis of prices shown in Notification dated 20. 11. 1986 - The
F demand raised by the Central Government is confirmed.
Para 27 - Review - Concept of - Explained - Held :
Once a review petition filed by the manufacturer of a bulk drug
is considered and a fresh notification is issued, the same
G would be prospective and it does not relate back to the
notification fixing the price of bulk drugs issued earlier -
Administrative Law - Subordinate Legislation.
H
50
.... -
UNION OF INDIA v. GLAXO INDIA LTD. & ANR.
51
DRUG PRICES EQUALISATION ACCOUNT:
A
Drug manufacturing company required to deposit in
DPEA the excess of the common selling price over retention
price -Held :The provision is a beneficial one -This provision
applies equally both to indigenously manufactured drugs as
8
well as the drugs imported so as to maintain uniformity in the
price of bulk drug.
WORDS AND PHRASES :
Expression 'supersession' - Connotation of in the c
context of drugs price fixation.
The respondent-company was engaged in
manufacture and sale of three bulk drugs, namely, BA,
BV and BP and formulations based thereon. The Central
Government, in exercise of power under Para 3(1) of the
D
Drug (Price Control) Order, 1979 (DPCO, 1979) fixed the
maximum price of the three bulk drugs by its order dated
12.5.1981. The respondent-company challenged the order
before the High Court in CWP No. 1551 of 1981. The High
Court stayed implementation of the order dated 12.5.1981
E
in view of the undertaking of the respondent company
to maintain the prices of the bulk drugs and its
formulations prior to the notification dated 12.5.1981, and
directed the parties for settlement in view of the petition
for review of the order dated 12.5.1981 filed by the
F
respondent company. The Central Government re-fixed
the price of the bulk drugs by order dated 20.11.1986 with
retrospective effect from 12.5.1981. The High Court
disposed of the writ petition by its judgment dated
31.8.1987. It did not quash the price fixation order dated
G
20.11.1986, but directed the respondent company to file
review petition before the Central Government. The
Central Government constituted 'Murthy Committee'
which gave its report dated 12.10.1988.
H
52
SUPREME COURT REPORTS
(2011] 4 S.C.R.
A
The Central Government, issued price fixation order
dated 2.1.1989 under DPCO 1989 fixing the price for the
three bulk drugs higher than that fixed under order dated
20.11.1986, and, by letters dated 18.6.1990 and 16.11.1990
raised a demand of Rs. 71.2 crores, as difference between
B the formulation prices fixed and the actual price charged
by the company for the period 12.5.1981 to 25.8.1987, to
be deposited in Drug Prices Equalisation Account
(DPEA). The company filed another writ petition (CWP No.
2170/90). The High Court allowed the writ petition holding,
c inter alia, that the demands raised were contrary to the
directions of the High Court in earlier writ petition (CWP
No. 1551/81); that the price fixation order was
retrospective in its operation and related back to the
order dated 12.5.1981; and that the demands raised were
0
in violation of Para 7(2) (a) of DPCO 1979 inasmuch as it
was not based on "common selling prices" and
"retention prices of bulk drugs" but was based on
"common selling price and the price of formulators". The
High Court also observed that even If the DPCO 1979 was
violated the company would be still entitled to retain the
E excess amount over and above the maximum statutory
price and the only option available to the Central
Government was to Initiate criminal proceedings. The
High Court directed the Central Government to raise the
demands on the basis of the revised prices of the bulk
F drugs as notified on 2.1.1989 and determine the excess
amount not on the basis of prices of the formulations, but
on the basis of the prices of bulk drugs used by the
company in its formulations. Aggrieved, the Union of
G
H
India filed the appeal.
The questions for considerations before the Court
were (i) whether the Central Govt. was justified in issuing
a demand based on Drug Prices fixed on 02.01.1989,
instead of drug prices fixed on 20.11.1986; (ii) whether the
UNION OF INDIA v. GLAXO INDIA LTD. & ANR.
53
Central Government was justified in directing the A
respondent-Company to deposit an amount of Rs.71.21
crores in the Drug Prices Equalization Account (in short,
"DPEA"); and (iii) what was the effect of 'supersession'
of a notification and when such supersession is made,
would it have the prospective or r~trospective effect.
B
Allowing the apj)eal, the Court
HELD : 1. The three bulk drugs manufactured by the
respondent-Company were covered under DPCO 1979,
which empowered the Central Government to fix the C
maximum prices thereof. Para 17 of DPCO, 1979
authorized the Central Government to maintain a Drug
Prices Equalization Account comprised of the Grants as
may be made by the manufacturers, importers and
distributors of the drugs. The purpose and object of this D
account was to control and maintain the prices of drugs
by getting the amounts determined under Para 7(2) and
the excess of the common selling price over retention
price deposited into this accour.t from those
manufacturers who were selling or utilizing the bulk drug
E
in their formulations. This provision appears to be a
beneficial provision. The reason being, if the "common
selling price" happens to be less than the "retention
price", the manufacturer could be paid out of DPEA. This
provision applies equally both to indigenously
F
manufactured drugs as well as the drugs imported, so as
to maintain uniformity in the price of bulk drugs. [para 24]
[76-G-H; 77-A-D]
2.1. There are three notifications. The first one is
dated 12.05.1981, wherein the Central Government fixed
G
the maximum sale prices of the three bulk drugs. The
second notification is dated 21.11.1986, whereby the
Central Government has fixed the revised prices of the
aforesaid three bulk drugs. These notifications were
subject matters of the writ petitions filed before the Delhi
H
54
SUPREME COURT REPORTS
[2011J 4 S.C.R.
A High Court. Pursuant to the directions issued in the
aforesaid writ petition, the Central Government issued the
notification dated 02.01.1989. [para 25] [77-E-F]
2.2. The Notification dated 2.1.1989 was issued by the
B Central Government in supersession of the earlier
Notification dated 12.5.1981. By this notification, the
Government has fixed the maximum price at which
indigenously manufactured bulk drugs shall be sold by
the respondent-Company and others. The impugned
notification uses the expression "supersession" of the
C earlier notification. When the fresh notification was issued
on 02.01.1989, the earlier notifications were superseded,
therefore, it could not be said that they became non est
for all purposes and were unable to support the
proceedings for the enforcement of liability incurred for
D the period prior to 1989, otherwise it would produce the
anomalous results. The point to be noted is that the
notification dated 26.11.1986 became effective from
12.5.1981. This notification, fictionally must be held to
have subsisted and was operative from such points of
E time of its commencement upto the date it was
superseded. [para 27-28) [78-G-H; 79-A, E-G]
F
State of Orissa Vs. Titaghur Paper Mills Company Ltd.
AIR 1980 SC 1293 - relied on.
Webster's Third New International Dictio and P.
Ramanathan Aiyar's Advanced Law Lexicon - referred to.
2.3. In Titaghur's case, this Court came to the
conclusion that the previous liability to tax for a period
G prior to the supersession was not wiped out. The results
that flow from changes in the law by way of amendment,
'repeal', 'substitution' or 'supersession' on the earlier
rights and obligations cannot be decided on any set
formulae. It is essentially a matter for construction and
H depends on the intendment of the law as could be
UNION OF INDIA v. GLAXO INDIA LTD. & ANR.
55
gathered from the provisions in accordance with A
. accepted cannons of construction. The notification in the
instant case is close to the consequences arising out of
repeal without the benefit of a saving clause in respect
of the obligations previously incurred, but for saving
principle in the Titaghur's case. In Nand Kishore's case, it B .
has been stated that the effect of an Act or an order which
is superseded is not to obliterate it altogether. A!l Act or
order is said to be superseded where a later enactment
or order effects the same purpose as an earlier one by
repetition of its terms or otherwise. [para 29) [80-C-E-G- c
H; 81-A-B]
Nand Kishore Vs. Emperor, AIR 1945 Oudh 214; Syeda
Mustafa Mohamed Gouse Vs. State of Mysore (1963) 1
Crl.L.J. 372 (Mys) and R. S. Anand Behari Lal Vs.
Government of U.P. AIR 1955 NUC 2769 All) - referred to. D
2.4. The appellants are well within their rights to raise
demands for making deposit into DPEA on the basis of
the prices notified by their notification dated 20.11.1986.
[para 29] [81-E]
E
3.1. Para 27 of the DPCO 1979 lays down that any
person aggrieved by any notification or order under
paragraphs 3,4,5,6,7,9,12,13,14,15 or 16, may apply to the
Government for a review of the notification or order within
fifteen days of the date of the notification in the Official F
Gazette. After receipt of the application/review petition, the
Government may make such order on the application as
it may consider necessary. In Cyanamide's* case it has
been observed that the review in para 27 of DPCO 1979
is in the form of a post decisional hearing which is G
sometimes afforded after the making of some of the
administrative orders, but not truly so. From the scheme
of the Control Order and the context and content of Para
27, the review insofar as it concerns the orders under
Paras 3, 12 and 13 appears to be in the nature of a H
56
SUPREME COURT REPORTS
(2011) 4 S.C.R.
A legislative review of legislation, or more precisely a
review of subordinate legislation by a subordinate
legislative body at the instance of an aggrieved person.
In the instant case, the Central Government was directed
by the High Court in the first judgment to consider
B certain grievances of the respondent-Company regarding
working out of certain weighted averages, such as rate
of income tax being taken low, the packaging and
distribution expenses taken lower than the actual cost,
etc., by the Central Government while the prices of the
C bulk drugs were being fixed. The Court had permitted the
respondent-company to file review petition, if they so
desire and further had directed the Central Government
to pass an order as they deem fit, that is, either affirming
or reviewing the prices fixed by order dated 20.11.1986
0 and to make consequent changes in the prices for drug
formulations, if fixed in the meanwhile. Thus, the High
Court had reserved liberty to the Central Government
either to affirm or review the prices of the bulk drugs fixed
by order dated 20.11.1986 and to make consequent
changes in the prices for drug formulations. The Central
E Government, taking clue from the directions issued by the
High Court, which order has become final, has passed
the impugned Notification dated 02.01.1989, by refixing
the prices of dn•g formulations by applying the provisions
contained in DPCO 1989. In this view of the matter, no
F fault can be found with the exercise done by Central
Government while notifying the impugned notification.
The notification so issued is in accordance with the
observations made by this Court in Cyanamide* case
which supports the stand of the Revenue, that once a
G review petition filed by the manufacturer of a bulk drug
is considered and a fresh notification is issued, the same
would be prospective and it does not relate back tp the
notification fixing the prices of bulk drugs issued earHer.
[para 30-32] [81-E-H; 82-A-F-H; 83-A-G; 84-B-C]
H
.... -
UNION OF INDIA v. GLAXO INDIA LTD. & ANR.
57
*Union of India v. Cyanamide India Ltd. 1987 ( 2 ) SCR
A
841 = (1987) 2 sec 720 - relied on.
3.2. It is no doubt true that the Murthy Committee was
constituted pursuant to the direction issued by the High
Court to look into the data that may be furnished by the 8
respondent-Company and give its report for the purpose
of fixing the prices of the bulk drugs manufactured by the
respondent-Company. It is also not in dispute that the
prices fixed by the Murthy Committee were much higher
than those notified by the Central Government, while
issuing the notification dated 20.11.1986. That itself will C
not make any difference for the reason, the Central
Government, after taking into consideration the report
and the recommendations made by the Murthy
Committee, has issued a notification which is only
prospective and not retrospective. Hence, there was no D
implied rejection of the recommendations of the Murthy
Committee. [para 33] (i&4-D-F]
3.3. Therefore, fi&.-tly, it cannot be said that the
Central Government while co11side~ing the review petition E
filed by the respondent-company had disregarded the
direction issued by the Delhi High Court in its first
judgment. Secondly, it cannot t?e said, as has been
contended by the respondent-company, that the price
fixation order of 02.01.1989 was the result of decision F
taken by the Central Government on the review petition
1
filed by the respondent-company and, therefore, the
\
demands raised as per the price fixation order dated
. 20.11.1986 had to be revised according to the price
fixation order dated 02.01.1989, cannot be accepted. G
Further, since the notification dated 02.01.1989 fixing
prices of bulk drugs is prospective, the earlier notification
would operate during the intervening period. [para 34]
[84-G-H; 85-A]
3.4. To sum up, the findings of this Court in regard H
58
SUPREME COURT REPORTS
[2011} 4 S.C.R.
A to the first and third issues are: (i) The demand to be
raised on the respondent-company for the period
12.05.1981 to 25.08.1987 is to be based on the prices fixed
under the notification dated 20.11.1986 and not on the
drug prices fixed on 02.01.1989; and (ii) The
B supersession of a notification does not obliterate the
liability incurred under the earlier notification. [para 34]
[85-8-D]
4.1. Para 7 of the DPCO, 1979 is in two parts. Subpara (1) of Para-7 authorises the Central Government to
C fix retention price and pooled price for the sale of Bulk
drugs specified in First Schedule or Second Schedule
indigenously manufactured and those of imported bulk
drugs. Sub-Para (2) of Para 7 speaks of a situation where
a manufacturer of formulations sells the formulations of
D any bulk drug, either manufactured by him or procured
by him from other sources, being lower than the price
allowed to him in the price of his formulations, the
Government may require such manufacturer of
formulations to deposit into DPEA the excess amount as
E determined by the Central Government. Sub Para 7(2)(b)
mandates the manufacturer of the formulations to sell
such formulations as fixed by the Central Government.
Para 7 of DPCO 1979 provides two different situations,
one based on the difference in the common selling prices
F of bulk drugs and the second the difference based on
common selling prices of the formulations. Para 17 of
DPCO 1979, authorizes the Central Government to
maintain DPEA comprised of the grants made by the
Government, deposits to be made by the manufacturers,
G importers and distributors of the drugs. It is a cardinal
principle of interpretation that a statute must be read as
a whole. [para 37 and 40) [86-G-H; 87-A-C; 88-F]
Phillips India Ltd. v. Labour Court, 1985 ( 3) SCR 491 =
H (1985) 3 sec 103 - relied on
.... -
UNION OF INDIA v. GLAXO INDIA LTD. & ANR.
59
Co/guhoun v. Brooks, (1889) 14 AC 493 - referred to.
A
4.2. A plain reading of Para 7(2)(a) of the DPCO 1979
shows what can be directed by the Central Government
to be deposited into DPEA by the manufacturer of bulk
c;lrugs and any formulations using those drugs or 8
procured from outside, as in the instant case. Firstly, Para
7(2)(a) applies to a manufacturer of formulations. The
manufacturer must utilize in the formulation(s) any bulk
drug. The bulk drug could be either from his own
production or procured from any other sources. If the C
price of such bulk drugs is notified as lower than the price
allowed to him in the price of his formulations, the Central
• Government may require the manufacturer of formulation
the excess amount determined to be deposited into
DPEA. Under Para 7(2)(b), the Central Government may
direct the manufacturer of formulations to sell the D
formulations at such prices as may be fixed by the
Government. [para 46] [92-F-H; 93-A]
4.3. The Central Government, while issuing the
letters/demand dated 18.06.1990 and 16.11.1990, has E
specifically bifurcated the differential amount that
requires to be paid by the respondent-company on the
bulk drugs and their formulations. In the letter, it is made
clear that in view of the notificatiC>n dated 20.11.1986, the
respondent-company has to deposit into DPEA the F
difference between the retention price and pooled price
for the sale of bulk drugs. Similarly, since the respondentcompany manufactures drug formulations by captive
consumption of the bulk drugs, the Central Government
initially could not fix the retention price of the G
formulations in view of the interim orders passed by the
High Court while admitting the writ petition filed by the
respondent-company. After disposal of the writ petitions
filed and in view of the specific liberty that was granted
by the High Court in the petitions filed by the respondentH
60
SUPREME COURT REPORTS
[2011] 4 S.C.R.
A company, the Central Government directed the company
to pay not only the difference amount payable for the
price of bulk drugs but also those drugs which are utilized
in their formulations over and above the prices fixed by
the Central Government. [para 47] [93-B-E]
B
4.4. It cannot be said that under para 7(2)(a) of DPCO
1979, the Central Government could issue demand on the
basis of bulk drugs only and not on the basis of difference
between the prices of bulk drugs and the prices of the
C formulations in which the company had used those bulk
drugs. [para 47] [93-E-F]
4.5. The respondent company (and similar
companies) not only manufacture bulk drugs but also
use them for their drug formulations for its supply in retail
D vending and thereby, the ordinary consumer is burdened
with a higher price than what they could have got at a
lesser price. That is taken care of in para 17 of DPCO
1979. [para 48] [93-G-H; 94-A]
E
4.6. The demands raised by the Central Government
is confirmed. [para 49] [94-B-C]
Case Law Reference:
1987 ( 2 ) SCR 841
relied on
Para 11
F
AIR 1980 SC 1293
relied on.
Para 28
AIR 1945 Oudh 214
referred to
Para 29
(1963) 1 Crl.L.J. 372
referred to
Para 29
G
(AIR 1955 NUC 2769 All) referred to
Para 29
(1889) 14 AC 493
referred to
Para 40
1985 ( 3 ) SCR 491
relied on
Para 41
H
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
6497 of 2002.
..... -
...... -
UNION OF INDIA v. GLAXO INDIA LTD. & ANR.
61
From the Judgment & Order dated 19.10.2001 of the High A
Court of Delhi at New Delhi in Civil Writ Petition No. 2170 of
1990.
Parag Tripathi, ASG, Sadhana Sandhu, Kiran Bhardwaj,
Amey Nargolkar, Vaibhav Joshi, S.N. Terdal, Kunal Bahri, B.V. 8
Balaram Das for the Appellant.
T.R. Andhyarujina, S. Ganesh, U.A. Rana, Mrinal
Majumdar, Priyanka Dayal, Gagrat & Co. of the Respondent.
The Judgment of the Court was delivered by
c
H.L. DATTU, J. 1. The issues that arise for our
consideration and decision in this appeal are :-
(i)
(ii)
(iii)
Whether the Central Govt. was justified in issuing a .
demand based on Drug Prices fixed on D
02.01.1989, instead of drug prices fixed on
20.11.1986.
Whether the Central Government was justified in
directing Glaxo India Ltd. (hereinafter referred to as, E
"Respondent-Company") to deposit an amount of
Rs. 71.21 crores in the Drug Prices Equalization
Account (in short, "DPEA").
What is the effect of 'supersession' of a notification
and when such supersession is made, would it have F
the prospective or retrospective effect.
Factual Backoround
2. The Respondent-Company is engaged in manufaciure G
and sale of three bulk drugs, namely, Betamethasone Alcohol
(B.A.), Betamethasone 17 valerate (B.V.) and Betamethasone
di Sodium Phosphate (8.P.), and various formulations based
on these bulk drugs. They were sold at the price that was
declared by the Respondent-Company under the Drugs (Price H
62
SUPREME COURT REPORTS
[2011] 4 S.C.R.
A
Control) Order, 1970 [in short, "DPCO 1970"]. The Central
Government promulgated the Drug (Price Control) Order, 1979,
[in short, "DPCO 1979"], replacing DPCO 1970 which included
the above mentioned bulk drugs in Schedule II to the order. The
Central Government is vested with the power under Para 3(i)
B
of DPCO 1979 to fix the maximum sale price of indigenously
manufactured bulk drugs in First or Second Schedule by
issuing a notification in the official gazette. Sub-Para 3(2)
provides that while fixing the price of a bulk drug, the
Government may take into account the average cost of
c production of such bulk drug manufactured by an efficient
manufacturer and allow a reasonable return on net worth. SubPara 3(3) prohibits any person from selling a bulk drug at a price
exceeding the price fixed under sub-para(1) and other local
taxes, if any, payable.
D
3. In exercise of the powers so conferred, the Central
Government had fixed the maximum price of the above
mentioned bulk drugs vide its order dated 12.05.1981.
4. The Respondent-Company had called in question the
E
legality and validity of the price fixation order dated 12.05.1981
before the High Court of Delhi in C.W.P No. 1551 of 1981,
mainly on the ground that the price fixation order did not take
into account the cost of production of bulk drugs as was
required to be done. On 27.08.1981, the High Court passed
F
an interim order staying the implementation of the bulk drug
prices fixed as per order dated 12.05.1981 as well as the
prices of the formulations from the said bulk drug, in view of
the undertaking of the respondent company to maintain the
prices of both bulk drugs and its formulations prior to the
G notification dated 12.05.1981. During the pendency of the
proceedings, the High Court, by order dated 13.05.1982,
directed the parties to explore the possibilities of a settlement,
when it was brought to the notice of the High Court that the
Respondent-Company has filed a review petition for review of
the price fixation order dated 12.05.1981 passed by the Central
H
..... -
--
UNION OF INDIA v. GLAXO INDIA LTD. & ANR.
63
[H.L. DATIU, J.]
Government in exercise of its power under Para 3(1) of DPCO A
1979.
5. Pursuant to the said direction, the Respondent-Company
made available the actual cost of production of bulk drugs to
the Central Government and also requested for an oral hearing. B
After considering the material available on the record and also
the oral submissions made, the Central Government re-fixed the
price of the three bulk drugs mentioned above by an Order
dated 20.11.1986 with retrospective effect from 12.05.1981.
Aggrieved by the same, the Respondent-Company amended
the relief claimed in the pending proceedings before the High C
Court.
6. The Division Bench of the High Court, by its judgment
and order dated 31.08.1987, disposed of the writ petition. While
doing so, the Court did not quash the impugned price fixation D
order dated 20.11.1986 (made after the first review) passed
by the Central Government, but directed the RespondentCompany to file another review petition before the Central
Government for reconsideration of the price fixed by impugned
price fixation order and the Central Government to condone the E
delay and consider the review petition on merits.
7. In the light of the said directions issued by the Delhi High
Court in CWP No.1551 of 1981, the Central Government
constituted the "Murthy Committee" consisting of experts in the
F
field. The Committee conducted the review in accordance with
directions issued by the High Court and submitted its report
dated 12.10.1988 to the Central Government. The Government,
vide its order dated 02.01.1989, issued price fixation order
under DPCO 1989 fixing the price for three Bulk Drugs higher
than the earlier price fixed vide order dated 20.11.1986. For G
convenience, we give below the price declared by the
respondent company under DPCO 1970 and the price fixed by
the Government on 12.05.1981, on 20.11.1986 after first review
and on 02.01.1989 after the second review.
H
A
B
c
D
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Price Fixed by the Central Govt.
s. Name
Declared Vi de
Vide
Vide
~o.
price with NotifiNotifiNotifiDPCO
cation
cation
cation
1970
dt.
dt.
dt.
12.05.81 20.11.86 02.01.1989
(first
(second
review)
review)
(Rs.)
(Rs.)
(Rs.)
(Rs.)
1. Betamethasone 134.28
113.34
127.70
144.19
Alcohol
2. Betamethasone 220.00
105.85
122.00
136.58
17-Valerate
3. Betamethasone 225.00
126.23
135.00
144.58
D-Sodium
Phosphate
Pursuant to the order so passed, the Union of India had
issued tentative demand of Rs. 66.35 Crores, which was finally
revised to Rs. 71.21 Crores (towards the difference between
E the formulation prices fixed in the price fixation orders and the
actual prices charged by the respondent company for the period
12.05.1981 to 25.08.1987) to be deposited by the respondentcompany in the DPEA, by their letters dated 18.06.1990 and
16.11.1990.
F
8. Aggrieved by the demand so made by the Central
Government vide its letters dated 18.06.1990 and 16.11.1990,
the Respondent-Company filed C.W.P. No. 2170 of 1990
before the High Court of Delhi, inter alia, questioning the legality
and validity of the demands raised by the Central Government
G and for its deposit into DPEA. The main issues raised therein
were that the demand was contrary to the directions issued by
the High Court in CWP No.1551 of 1981. Secondly, the
demands were in violation of para 7(2)(a) of the DPCO 1979
and further, the demands were not based on the difference in
H
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UNION OF INDIA v. GLAXO INDIA LTD. & ~NR.
· 65
[H.L. DATTU, J.]
prices of "common selling prices" and "retention prices" of bulk
A
drugs, but were based on the difference between the "common
selling prict}s" and the "price of formulations". The writ petition
was contested by the Union of India, and it was contended that
the prices were fixed after taking into consideration all the
relevant data and the same was done in accordance with the
B
judgment and order of the Division Bench of the High Court in
C.W.P. No. 1551 of 1981.
9. The High Court, by its order dated 19.10.2001, allowed
the writ petition and quashed the demands made by the Central
Government as illegal, arbitrary and contrary to the directions
C
issued by the Division Bench of the High Court in C.W.P. No.
1551 of 1981. It was held that the price fixation order dated
02.01.1989 was retrospective in its operation and related back
to the order dated 12.05.1981. It was also held that the
demand raised by the Central Government was in violation of
Para 7(2)(a) of the DPCO 1979, inasmuch as it is not based
D
on the "common selling prices" and "retention prices of bulk
drugs", but is based on the difference between the "common
selling prices" and the "price of formulations". The Court further
observed that even though the DPCO 1979 contained statutory
E
provisions for fixation of formulation prices, even if it is violated,
the respondent company would still be entitled to retain the
excess amount over the statutory maximum price and the onlv
· option available to the Central Govt. was to initiate criminal
proceedings. The High Court directed the appellants to raise
F
demands on the basis of the revised prices of the bulk drugs
as notified on 02.01.1989 and for the purpose of Para 7(2) (a)
of DPCO 1979, determine the excess amount not on the basis
of the prices of the formulations but on the basis of the prices
of bulk drugs use.d by the respondent company in its G·
formulations. The correctness of the said judgmentand order
is called in question by the Union of India in this appeal.
10. Since we will be referring to two Division Bench
judgments and orders of the High Court of Delhi in the course
H .
.. .: '-,.
. '
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A of our judgment, we will refer to the judgment in C.W.P. 1551
of 1981 as the 'first judgment' and the judgment in C.W.P. No.
2170 of 1990 as the 'impugned judgment', to avoid any
confusion.
B Submissions of the Appellant - Union of India
11. -The case of the learned Additional Solicitor General
Shri. Parag P. Tripathi is that the Division Bench of the High
Court erred in coming to the conclusion that the price fixed by
the Central Government on the bulk drugs manufactured by the
C Respondent-Company is contrary to the statutory provision and
the direction issued by the High Court in the first judgment. It is
further argued that the Murthy Committee constituted to
examine the review petition filed by the Respondent-Company
considered the data between 1980-81 and 1984-85, which
D itself prima facie rules out that the price fixation order was to
be applied retrospectively and should relate back to the order
passed on 12.05.1981. It is further submitted that that the
decision of the executive in the mechanics of price fixation is
beyond the scope of judicial review as held by this Court in the
E case of Union of India v. Cyanamide India Ltd., (1987) 2 SCC
720. Our attention was also drawn to the affidavit of the Union
of India filed before the Delhi High Court, and the file notings
of Shri. R.N. Tandon. By placing reliance on these material, he
would submit, that the recommendations of the Murthy
F Committee were to come into ~ffect prospectively, and not
retrospectively. Alternatively, it is submitted that the price
fixation aider dated 2.1.1989 in the Review Petition filed by the
Respondent-Company was under the DPCO 1987 and had
nothing to do with the price fixation order dated 20.11.1986 and
G therefore, it should be presumed that the Review Petition filed
by the Respondent-Company was impliedly rejected. It is also
submitted that the intention of the Central Government to fix the
price of bulk drug and its formulations prospectively could be
clearly inferred from the price fixation order itself. It is urged that
the Review Petition was impliedly rejected and the prices that
H
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..... -
UNION OF INDIA v. GLAXO INDIA LTD. & ANR.
67
[H.L. DATIU, J.] \
were fixed on 2.1.1989 were to be given effect prospectively
A
\
and did not relate back to price fixation order dated 20.11.1986,
which has been retrospectively applied with effect from
12.05.1981.
12. With regard to the finding of the Division Bench in the
8
impugned judgment that the demands raised is in contravention
of Para 7(2)(a) of the DPCO 1979, it is submitted that the
Respondent-Company has already benefited from the stay
order passed by the High Court, and the demand was based
on the difference on the price of bulk drug prevalent prior to the
C
stay order and the prices fixed on 2.1.1989. It is further
submitted that the stand of the Respondent-Company that since
there is no provision in the DPCO 1979 .for the deposit of the
excess amount in the DPEA, the Respondent-Company should
be allowed to retain the same, is against the basic principles
of 'unjust enrichment' as held by this Court. In support of this
D
contention, our attention was drawn to observations made by
this Court in Mafatlal, (1997) 5 SCC 536; Concap Capacitators
(2007) 8 SCC 658, Swanstone Multiplex Cinema, (2009) 10
SCALE 148]. It is argued that the Drugs (Prices Control) Order
is a socio-economic measure, and the same has to be
E
interpreted by this Court in the light of the object sought to be
achieved, viz. to ensure that there is a proper availability of
drugs at reasonable prices, which are fair to the consumer as
well as to the industry. It is also contended that the phrase
"excess amount to be determined by the Government" in Para
F
7(2)(a) of the DPCO 1979, gives a wide discretion to the
Government to determine any amount to be recovered, and that
the demand made as amount due is therefore justified. It is
further submitted that it is incorrect to proceed on the basis that
the DPCO 1979 permitted such retention of excess money that
G
was in excess over the formulation price fixed under the price
fixation order and such an interpretation will be contrary to the
object of the provisions of the Essential Commodities Act and
of the DPCO 1979. It is further argued that since Para 7(2)(a)
dealt with DPEA only, and it is totally incorrect to interpret the
H
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SUPREME COURT REPORTS
[2011] 4 S.C.R.
A same in a manner that would permit drug companies to violate
price fixation order and get away with the same, by stating that
the Respondent-Company was liable only to criminal
proceedings, if any.
8
13. In the alternative, it is submitted that Para 14 of the
DPCO 1987, provides for recovery of dues accrued under
DPCO 1979 and deposit of the same into DPEA. In view of
the said provision, the Central Government has the power to
direct the drug companies to deposit such amounts in the
DPEA. A further reference is also made to Para 15 of the
C DPCO 1987, which gives the power to the Central Government
to recover dues accrued due to charging of prices higher than
those fixed or notified by the Government as per the provisions
of the DPCO 1987.
D Submissions of the Respondent-Company
14. Shri. T.R. Andhyarujina and Shri. S. Ganesh, learned
senior counsel, submitted that there is a basic difference
between 'review' and 'revision' under the DPCO 1979, and that
E a 'review' operates retrospectively from the date of fixation of
the drug price under review, whereas, the order passed in a
'revision' is prospective in its operation. It is brought to our
notice that in Cyanamide's case, it was held that a review was
in the nature of a post decisional hearing that is granted to the
manufacturers of bulk drugs. It is argued that the review was
F filed by the Respondent-Company for review of the bulk drug
price fixation order dated 12.05.1981 even before filing of the
first writ petition and the same was considered by the Central
Government by its order dated 20.11.1986, in which the price
fixed were considerably higher than those in 1981. It is also
G submitted that this review was based on the RespondentCompany's cost of production for 5 years from 1981 to 1985.
It is further submitted that the review conducted by the
Government took the actual cost of production between 1981
and 1985, instead of the projected cost of production, as the
H
-
--
UNION CF INDIA v. GLAXO INDIA LTD. & ANR.
69
[H.L. DATTU, J.]
normal practice was, in the review that was conducted in 1986.
A
It is further argued that the Division Bench, in the first judgment,
had directed the Respondent-Company to file a review of the
price fixation order 1986, and, therefore, the same would
necessarily relate back to the price fixation order dated
12.5.1981. It is further argued by the learned counsel that the
B
price fixation order of 02.01.1989 had superseded the price
fixation order dated 12.5.1981 and, therefore, the same is
retrospective and not prospective as contended by the
Revenue. It is contended that the Murthy Committee carried out
the review strictly in conformity with the first decision of the High c
Court and on the same basis as conducted in 1986, i.e. the
actual costs between 1981 and 1984-85 were considered by
the Murthy Committee. It is also brought to our notice that
though the Respondent-Company requested the Committee to
consider the costs up to 1986-87, the same was not granted
D
by the Committee, thereby bringing to our notice that the
Committee followed the directions issued by the Division Bench
of the High Court: It is further submitted that the price fixation
order passed by the Committee in pursuance nf the directions
of the High Court in the first judgment, were significantly revised
E
upwards, though based on the same data that was considered
in the year 1986.
15. The learned counsel submits that the contention of the
Central Government that the Review Petition filed by the
Respondent-Company was impliedly rejected by the
F
Government is incorrect, since no such order was ever
communicated to the Respondent-Company. It is submitted that
the order passed in review petition necessarily operates
retrospectively, and it is fallacious even to suggest that an order
passed in review petition operates prospectively. It is further G ·
submitted that the Central Government, while issuing the letter
dated 16.11.1990 by way of demand notice directing a
particular amount to be paid to DPEA, considered only the first
review dated 20.11.1986, and ignored the review of
02.01.1989 as though it never happened. Hence, it is argued
H
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[2011] 4 S.C.R.
A that the demand of Rs. 71.21 crores made by the Central Govt.
is illegal, arbitrary and in violation of the price control order.
16. According to the learned counsel for the RespondentCompany, the situation contemplated for deposit into the
8
DPEA is the profit earned by the manufacturer between the
formulation price that has been fixed on the basis of certain bulk
drugs and the bulk drug price, if in case, the manufacturer of
formulations procures and uses the bulk drug at a price which
is lower than the prices fixed. It is urged that the same is clear
from the combined reading of Para 7(2)(a) and Para 17 of the
C DPCO 1979. It is contended that this difference in bulk drug
prices can be recovered by the Central Government from the
manufacturer by directing them to deposit the excess amount
in the DPEA. It is further submitted that the phrase "excess
amount" when read in the context can only mean the difference
D in the prices of bulk drugs and the same is clear from scheme
of DPCO 1979.
17. It is further contended that the Central Government
entered into agreements with other drug companies for recovery
E of the differential amounts, and no such agreement was entered
into with the Respondent-Company. It is submitted that the
doctrine of contemporaneous exposition demanded that the
settled understanding of Para 7(2)(a) should be continued.
F
18. The learned counsel disputes that there was any unjust
enrichment by the Respondent-Company, as contended by the
learned counsel for the Revenue and to the contrary, the returns
filed by the Respondent-Company would amply demonstrate
that there was less margin of profit than what it is entitled to
under the Fifth Schedule of the DPCO 1979. It is also stated
G that the Respondent-Company never charged prices higher than
those that were fixed by the Central Government.