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   REPORTABLE      IN THE SUPREME COURT OF INDIA                CIVIL APPELLATE JURISDICTION                               CIVIL APPEAL NO.6178 OF 2009                                                     GLAXO SMITHKLINE PHARMACEUTICALS LTD. & ANR.

..  APPELLANT(S)

                   Versus UNION OF INDIA & ORS. ..  Respondent(s)                                                    J U D G M E N T

R.F. NARIMAN, J.

The  present  appeal  arises  on  the  true construction of paragraph 28 of the Drugs (Prices Control)  Order,  1987,  read  with  exemption notification dated 28th February, 1992.  Paragraph 28 of the DPCO, 1987, reads as under:

“28. Power to exempt- (1) The Government may,  having  regard  to  the  factors mentioned in sub-paragraph (2) and subject to  such  conditions,  if  any,  as  it  may specify, by order in the Official Gazette, exempt any drug manufacturing unit or a class of such units from the operation of all or any of the provisions of this order and may, as often as may be, revoke or modify such order. (2)   While  granting  exemption  under sub-paragraph  (1),  the  Government  shall have regard to all or any of the following

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factors relating to the drug manufacturing unit or a class of such units, namely; a)    Number of workers employed;

b)    Amount of capital invested; c)  Range  and  type  of  products manufactured; d)    Sales turnover;

e)   Production of bulk drug basic stage by  process  developed  through  indigenous Research and Development”.

Under paragraph 28, an exemption notification was issued for the period mentioned to Glaxo India a  manufacturer  of  a  bulk  drug  which  is Betamethasone Disodium Phosphate.  The exemption notification with which we are directly concerned is set out hereunder:

“S.O.  166  (E)  –  In  exercise  of  the powers  conferred  by  sub-paragraph  (1)  of Paragraph 28 of the Drugs (Prices Control) Order, 1987, the Central Government, having regard to the factors specified in clause (e) of sub-paragraph (2) of paragraph 28 of the  said  Order  and  also  having  been satisfied for the need to do so in public interest, hereby exempts the bulk drugs and formulations based, thereupon specified in column  2  of  the  Table  below  which  is manufactured by the  company specified in the corresponding entry in column 3 from the

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operation  of  price  control  stipulated  in sub-paragraph  (1)  of  Paragraph  3  and sub-paragraph (1) of paragraph 9 of the said Order,  upto  the  period  as  indicated  in column 4 thereof.”

TABLE

Sl No  

Name of the bulk drug  

Name of Company

Period  upto which  the exemption  is granted

1. Povidone Iodine

Wockhar dt Ltd.

31.12.1995

2. Betamethasone Disodium Phosphate

Glaxo India Ltd.  

31.12.1994

A  lot  of  correspondence  took  place between the appellant before us and the Union of India which ultimately culminated in a show cause notice dated 10th June, 1997. The said show cause notice referred to  an earlier letter written by the  appellant,  finding  that  there  was  a differential in the price charged for the goods manufactured during the exemption period stated thereunder. A sum of Rs.1.90 crores was payable in the following terms:

“2. Government had exempted Betamethasone disodium  Phosphate  based  formulations  of

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your company for only the period 28.2.92 to 31.12.94 vide notification SO No. 166 dated 28.2.92.  Accordingly, you were required to follow the prices fixed by the Government for  the  formulation  pack  immediately  on expiry of the exemption period i.e. from 1.1.95.   Your  contention  that  an application for fresh cost study had been made in October 1994 itself, merely did not give the right to the company to charge own prices,  a   Government  fixed  price  was prevailing  as  on  that  date.   A  case  of violation  of  the  provisions  of  the  para 9(3) of the DPCO '87 has accordingly been established  and  it  has  been  decided  to invoke the provisions of para 13 of the DPCO'95, for recovery of overcharged amount as assessed below:

  Period  of overchargin g

Tentative sales  (no. of packs)

Overc hargi ng per  

Tentative amount  of overcharging

1.1.95 to 24.1.95

19,20,624 Rs. 1.52

Rs. 29,19,348

25.1.95 to 17.7.95

1,39,24,524 Rs. 1.16

Rs. 1,61,52,447

Total Rs. 1,90,71,795

This was replied to by the appellant, after which an order was passed on 9th April, 1999, by which the said show cause notice was confirmed, and a sum of Rs.2.04 crores including interest was  demanded.   Since  the  appellants  were

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aggrieved by the said demand, they filed a Writ Petition No.1266 of 1999 before the High Court at Bombay, which culminated in the impugned judgment dated  16th February,  2004,  dismissing  the aforesaid writ petition.

Shri  S.Ganesh,  learned  senior  counsel, appearing on behalf of the appellant, has placed great emphasis on the fact that both paragraph 28 as well as the exemption order, read with the Central  Government  Guidelines  of  14th February, 1989,  lead  to  only  one  conclusion  that  it  is “manufacture”  and  not  sale  that  is  relevant. According  to  the  learned  counsel,  since  the period of exemption  ends on 31st December, 1994, it is open to the appellants to charge a price which  is  not  a  price  under  the  DPCO  at  any subsequent point of time.  According to him this has not been correctly appreciated by the High Court, as a result of which the High Court, in going into various other provisions of the DPCO and  reading  them  along  with  the  exemption provision, has gone wrong and mixed up price with

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manufacture.

The sheet anchor of Shri Ganesh's case is a judgment delivered by this Hon'ble Court in Union of  India vs.  Ranbaxy  Laboratories  Limited  and Others, (2008) 7 SCC 502  in which the selfsame problem  arose  before  this  Court  under  pari materia provisions  of  the  DPCO  of  1995.  This Court  has  unequivocally  held  in  favour  of  the construction  suggested  by  Shri  Ganesh,  namely that all manufacturers of exempted goods, upto the last date of exemption, would be entitled, at any subsequent point of time, to charge a price which is not controlled by the DPCO.

Shri  Rana  Mukherjee,  learned  senior counsel  appearing  on  behalf  of  the  Union  of India,  has  tried  to  support  the  High  Court's judgment, and has referred us to Guideline No. (viii) of the Central Government Guidelines, and paragraph 16(3) of the DPCO of 1987.  According to him, a subsequent judgment of this Court in Glaxosmithkline Pharmaceuticals Ltd. vs. Union of

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India and Others (2014) 2 SCC 753 has correctly distinguished the earlier judgment in Ranbaxy's case,  and  would  therefore,  squarely  cover  the present facts.   

Having  heard  learned  counsel  for  the parties, the point with which we are concerned is in a very narrow compass.  If paragraph 28, which is set out hereinabove is perused, it is clear that the exemption relates to drug manufacturing units  or  classes  of  such  units.   The  very exemption order which has also been set out by us (supra)  again  refers  only  to  bulk  drugs  and formulations  based  thereupon  which  are “manufactured”  by  the  company.   Further,  a reading of the guidelines of 1989 also makes it clear  that  the  exemption  only  relates  to manufacture  and  has  no  reference  to  sale whatsoever.  The Guidelines of 1989 are set out hereunder:

        GOVERNMENT OF INDIA     MINISTRY OF INDUSTRY

DEPARTMENT OF CHEMICALS & PETROCHEMICALS (OFFICE OF THE DEVELOPMENT COMMISSIONER)

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   New Delhi, the 14th February, 1989 GUIDELINES NO. 1/ 1989

In exercise of the powers conferred by Paragraph 25 of the Drugs (Price Control) Order, 1987, (hereinafter called the “said Order”),  the  Central  Government  hereby issue guidelines for the purpose of grant of exemption under Para 28 of the Order to such bulk drug manufacturing unit from the provisions of Para 3 of the said Order, in respect  of  such  bulk  drugs)  as  is/are produced by that unit from the basic stage by  a  process  of  manufacture  developed through  its  own  Research  and  Development effort,  for  a  specified  period  not exceeding  five  years  reckoned   from  the date  of  commencement  of  commercial production of such bulk drug(s) subject to the following, namely:- (i) The process development activities are registered  with  the  Department  of Scientific  and  Industrial  Research (hereinafter  referred  to  as  DSIR)  and  a certificate is issued by DSIR to the effect that  the  manufacture  has  developed  the process of manufacture through its own R&D efforts. (ii)  The  process  so  developed  is significantly  different  from  the known/available  technology  in  the  country leading  to  import  substitutions/cost reduction, etc. (iii)  The  manufacturer  shall  make  an application  to  the  Government  within  30 days  of  commencement  of  commercial production of such bulk drug or within 30 days  of  the  date  of  issue  of  these guidelines  in  the  case  of  bulk  drugs already under production, as the case may be, along with the information as per the Annexure, and such other information as may

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be required by the Government and/or such additional information as the company may voluntarily furnish. (iv) The Government if satisfied with the application  mentioned  above,  may  by  a Notification  in  the  official  Gazette, exempt  a  manufacturer  from  fixation  of price or compliance with the price already fixed if any for such a bulk drug under the provisions of the said Order. (v) In case of bulk drugs which are already being produced from the basic stage by a process  of  manufacture  developed  through indigenous  Research  and  Development,  the period which has already elapsed since it came  into  commercial  production  by  this process,  shall  count  towards  determining the  said  limit  of  five  years  prescribed under this Order. (vi)  In  case  of  processes  developed  by National  Laboratories  and  purchased  and actually  made  use  of  by  a  manufacturer, such  activity  shall  also  be  taken  into consideration for the purpose of granting exemption. (vii) The Government shall have the liberty to withdraw the exemption so granted at any time. (viii)  After  expiry  of  the  period  of exemption,  the  manufacturer  shall  submit application(s)  in  Form  I  of  the  Drugs (Prices Control) Order, 1987 for fixation of price of such a bulk drug(s)under the provisions of the said Order.

Sd/-

   (R.S. Mathur)     Joint Secretary to the Govt. of India

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  It will be noticed that the reference is to  the  date  of  commencement  of  commercial production of a bulk drug which has reference to manufacture  alone.   However,  Shri  Mukherjee, referred us to sub-clause (viii) of the aforesaid guidelines  in  order  to  argue  that  after  the expiry  of  the  period  of  exemption,  the manufacturer  has  to  submit  an  application  for fixation of the price of a bulk drug under the provisions of the DPCO.

   Sub-clause  (viii)  cannot  be  read  in isolation  but  must  be  read  as  a  part  of  the entire  scheme  of  the  guidelines.  All  that sub-clause (viii) says is that after the period of exemption, which is after the period which has reference to manufacture and not sale of goods, such  goods  as  are  manufactured  after  the exemption  will  be  subject  to  the  drill  of sub-clause (viii).  Read in this light, we do not find any difficulty in rejecting Shri Mukherjee's arguments based on this sub-clause.

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We are of the view that the matter is no longer  res-integra. In Ranbaxy's case, cited by Shri Ganesh,  the relevant exemption provision under the DPCO of 1995, referred to in paragraph 19  of  the  judgment,  is  almost  a  verbatim reproduction of the earlier exemption provision i.e. paragraph No.28 of the DPCO of 1987, with which  we  are  directly  concerned.   Even  the exemption notification mentioned in paragraph 20 of  the  aforesaid  judgment,  like  the  exemption notification in the present case, refers only to bulk drugs and formulations “manufactured” by the company.  After hearing arguments from both sets of counsel, the Court answered the question that was before it thus:

“25.  The short question which arises for our  consideration  is  as  to  whether  the exemption  notification  would  apply  in respect of drugs which were manufactured up to 31-10-1999 or manufactured and sold up  to  the  said  date.   The  exemption granted is in respect of what?  It is in respect  of  a  drug  manufactured  by  a company.  What is marketed for sale is the drug manufactured.  Manufacture of a drug  is  controlled  by  a  different statute, namely, the Drugs and Cosmetics Act, 1940.  Process of marketing the drug

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as also the maximum price which can be charged  have  direct  relation  with manufacture  and  also  the  date  thereof. The wrapper/foil/containers in which the drug  is  marketed  contains  several informations for the general public; one of them being the date of manufacture and the  retail  price.   Various  other informations  are  also  required  to  be furnished.

26.   The  contention  of  the  learned Additional  Solicitor  General  that  the drug  could  be  manufactured  up  to 31/10/1999 but on and from 1/11/1999 it could be sold only at the price specified in the Order, in our opinion, cannot be accepted.   If  the  first  respondent  was entitled  to  avail  the  benefit  of  the exemption notification till the midnight of  31-10-1999,  some  time  would  be necessary  for  it  to  market  the  same. There must be some time-lag between the period the drug is manufactured and the actual  sale  by  a  retail  dealer  to  the customer.

27.   The  court  while  construing  an exemption notification cannot lose sight of  the  ground  realities  including  the process  of  marketing  and  sale.   The exemption order dated 29-8-1995 is clear and unambiguous.  By reason thereof what has been exempted is the drug which was manufactured by the Company and the area of exemption is from the operation of the price control.  They have a direct nexus. They  are  correlated  with  each  other. While  construing  an  exemption notification not only a pragmatic view is required  to  be  taken  but  also  the practical aspect of it.  A manufacturer would not know as to when the drug would

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be sold.  It has no control over it.  Its control over the drug would end when it is  dispatched  to  the  distributor.   The distributor  may  dispatch  it  to  the wholeseller.  A few others may deal with the same before it reaches the hands of the  retailer.   The  manufacturer  cannot supervise  or  oversee  as  to  how  others would be dealing with its product.  All statutes  have  to  be  considered  in  the light of the object and purport of the Act.  Thus, the decisions relied upon by the learned Additional Solicitor General in Union of India v. Cynamide India Ltd.; Prag Ice & Oil Mills v.  Union of India, Shree Meenakshi Mills Ltd. v.  Union  of India and  Panipat  Coop.  Sugar  Mills v. Union of India will have no application.

28.  It is true that the 1995 Order was to  control  the  price  and  not  the manufacture.   But  there  cannot  be  any doubt  that  the  price  is  that  of  a manufactured drug.

29.  Not only in terms of the Essential Commodities  Act,  1955  but  also  under various others, for example, Customs and Central  Excise  Act  and  the  Weights  and Measures  Act  (if  applicable)  several informations  are  required  to  be furnished.   If  the  submission  of  Mr. Gopal  Subramanium  that  the  first respondent  was  bound  not  only  to manufacture but also to sell at a price up to 31-10-1999 is correct, the same in our opinion would lead to an absurdity. Such  an  anomaly  and  absurdity  must  be avoided.”

   Not to be deterred by the plain language

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of  the  aforesaid  judgment,  Shri  Mukherjee referred  us  to  a  later  judgment  in  the Glaxosmithkline  case,  referred  to  hereinabove. The  issue  in  that  case  concerns  a  price notification issued under the later DPCO of 1995. In  the  course  of  arguments,  counsel  for  the appellants  relied upon the Ranbaxy Laboratories case, in order to buttress his submission on the facts  of  that  case.   However,  the  Court distinguished  the  Ranbaxy   judgment  in paragraph-60 thereof as follows:

“60.   The  issue  before  us  is  quite different and, in our view, the judgment of  this  Court  in  Ranbaxy  Laboratories does not apply to the present controversy for  more  than  one  reason.   First,  in Ranbaxy  Laboratories,  the  Court  was concerned with the exemption notification issued under  Para 25  of the  1995 DPCO whereas in the present matters, the issue centres around  Paras 14,  16 and  19 of that  DPCO.   Second,  the  notification under  consideration  in  Ranbaxy Laboratories was  an  exemption notification and not a notification for fixation of price.  Third, the exemption notification  is  relatable  to  the manufacturer of the drugs whereas price fixation notification is related to sale of drug/formulation at a given price.”

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It can be seen that the issue that arose in  the  Glaxosmithkline  case  was  completely different from the issue that arose in Ranbaxy's case and the present case.  Ranbaxy's case and the present case are directly concerned only with an exemption notification, and not a notification for fixation of price.  Also, what is relevant for an exemption notification is the manufacture of drugs, whereas what is relevant for a price fixation  notification  relates  to  sale  and  not manufacture.  Obviously,  therefore,  the  Glaxo- smithkline decision would have no relevance to the facts of the present case.  Coming to Shri Mukherjee's arguments based on paragraph 16(3) of the DPCO of 1987,  we first set out the said provision:

“16(3)-  Every  manufacturer  or importer shall give effect to the price of a  bulk drug  or formulation,  as the case may be, as fixed by the government from time to time within 15 days from the receipt by such manufacturer or importer of the communication in this behalf from the government and issue a supplementary price list in this regard to the dealers, state  drugs  controllers  and  the government  and  indicate  necessary reference to such price fixation.”

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   Shri Mukherjee has based his argument on the fact that there cannot be two prices for the same bulk drugs or formulation, which is why the period of 15 days is mentioned in paragraph 16(3) so that one price may be fixed by the Government for each bulk drug and formulation from time to time.  This argument also need not deter us, for the simple reason that there will only be one price  that  is  fixed  for  all  goods  that  are manufactured by the appellant upto 31st December, 1994, and that price will be a price unilaterally determined by the appellant and will not be fixed under the DPCO.

 This being the case, we allow the present appeal and set aside the judgment of the High Court.                            ....................J.

                 [ROHINTON FALI NARIMAN]       

                          ....................J.             [SANJAY KISHAN KAUL]  NEW DELHI, JULY 18, 2017.