REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6497 OF 2002

Union of India                                                        …………..Appellant

Versus

Glaxo India Ltd. & Anr.                                      …………..Respondents

J U D G M E N T

H.L. Dattu, J.

1) The issues that  arise for our consideration and decision in  

this appeal are :-

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 Central  Government was justified in directing  

Glaxo  India  Ltd.  (hereinafter  referred  to  as,  “Respondent-

Company”)  to  deposit  an  amount  of  `71.21  crores  in  the  

Drug Prices Equalization Account (in short, “DPEA”).

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iii) What  is  the  effect  of  ‘supersession’  of  a  notification  and  

when  such  supersession  is  made,  would  it  have  the  

prospective or retrospective effect.                

Factual Background

2)    The Respondent-Company is engaged in manufacture and  

sale  of  three  bulk  drugs,  namely,  Betamethasone  Alcohol  

(B.A.),  Betamethasone  17  valerate  (B.V.)  and  

Betamethasone  di  Sodium  Phosphate  (B.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  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)  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  

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Government  may  take  into  account  the  average  cost  of  

production of such bulk drug manufactured by an efficient  

manufacturer  and allow a  reasonable  return  on  net  worth.  

Sub-Para 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.    

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  

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 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  

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prior  to  the  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 Government in exercise of  

its power under Para 3(1) of DPCO 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.  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 Court.

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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 order dated 20.11.1986 (made after  

the  first  review)  passed  by  the  Central  Government,  but  

directed  the  Respondent-Company  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 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 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 convenience,  

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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.   

Price Fixed by the Central Govt. S.  

No. Name Declared  

price  with  

DPCO  1970 (`)

Vide  Notification  dt. 12.05.81

(`)

Vide  Notification  dt. 20.11.86 (first review)

(`)

Vide Notification  dt. 02.01.1989

(second review)

(`) 1. Betamethasone  

Alcohol 134.28 113.34 127.70 144.19

2. Betamethasone  17-Valerate

220.00 105.85 122.00 136.58

3. Betamethasone  D-Sodium  Phosphate

225.00 126.23 135.00 144.58

Pursuant to the order so passed, the Union of India had  

issued tentative demand of `66.35 Crores, which was finally  

revised to `71.21 Crores (towards the difference between 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  

respondent-company  in  the  DPEA,  by  their  letters  dated  

18.06.1990 and 16.11.1990.

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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 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  prices  of  “common  

selling prices” and “retention prices” of bulk drugs, but were  

based on the difference between the “common selling prices”  

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  

judgment and order of the Division Bench of the High Court  

in C.W.P. No. 1551 of 1981.

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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 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  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  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 only option available to the Central  

Govt. was to initiate criminal proceedings.  The High Court  

directed the appellants to raise demands on the basis of the  

revised prices of the bulk drugs as notified on 02.01.1989  

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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  

used by the respondent company in its  formulations.   The  

correctness  of  the  said  judgment  and  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  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.

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  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  

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Committee constituted to examine the review petition filed  

by  the  Respondent-Company  considered  the  data  between  

1980-81 and 1984-85, which 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 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 Committee  

were  to  come  into  effect  prospectively,  and  not  

retrospectively.  Alternatively, it is submitted that the price  

fixation order 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  therefore,  it  should  be  presumed  that  the  

Review  Petition  filed  by  the  Respondent-Company  was  

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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  were  fixed  on  

2.1.1989 were to be given effect prospectively 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  

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 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  

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the  same,  is  against  the  basic  principles  of  ‘unjust  

enrichment’  as  held  by  this  Court.   In  support  of  this  

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 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 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 was in excess  

over  the  formulation  price  fixed  under  the  price  fixation  

order and such an interpretation will be contrary to the object  

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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 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.

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 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.  

Submissions of the Respondent-Company

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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  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  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 submitted  

that  this  review was  based  on  the  Respondent-Company’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 normal practice  

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was, in the review that was conducted in 1986.  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  

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 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 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  

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pursuance  of  the  directions  of  the  High Court  in  the  first  

judgment, were significantly revised 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  

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 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  that  the  demand  of  `71.21  crores  made  by  the  

Central Govt. is illegal, arbitrary and in violation of the price  

control order.   

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16)           According to the learned counsel for the Respondent-

Company,  the  situation  contemplated  for  deposit  into  the  

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 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 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 of the differential amounts, and no such agreement  

was  entered  into  with  the  Respondent-Company.  It  is  

submitted that  the doctrine of  contemporaneous  exposition  

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demanded  that  the  settled  understanding  of  Para  7(2)(a)  

should be continued.

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 that  the Respondent-Company never charged  

prices  higher  than  those  that  were  fixed  by  the  Central  

Government. It is also contended that the impugned demand  

made by the Central Government is without the authority of  

law and in total disregard to the directions contained in the  

first judgment.  It is submitted that Para 7 of the DPCO 1987  

did  not  give  any  authority  to  recover  the  difference  in  

‘notional’ prices of formulation as the Central Government  

sought to do vide letter dated 16.11.1990.  It is further argued  

that the only liability that the Respondent-Company had, was  

the liability that accrued in respect of actions taken prior to  

25.08.1987,  which  was  nothing  but  the  difference  in  bulk  

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drug  prices.  It  is  stated  that  only  this  amount  could  be  

recovered by virtue of Para 14 of the DPCO 1987, unlike  

what  was  claimed by  the  Central  Government.   It  is  also  

argued that the High Court, in the impugned judgment, had  

correctly  decided  the  issue  by  quashing  the  demand  for  

payment of  `71.21 crores made by the Central Government.  

It  is  submitted  that  the  demands  made  vide  letter  dated  

16.11.1990 is liable to be set aside as the demand was made  

on the prices based on notional formulation prices worked  

out  by  the  Bureau  of  Indian  Standards,  which  were  not  

revealed to the Respondent-Company, and that these notional  

formulation prices were in total disregard of the review of the  

bulk  drug  prices  notified  on  02.01.1989,  which  were  in  

pursuance of the directions of the first judgment, but on the  

basis of the previously fixed bulk drug prices of 20.11.1986.  

In  conclusion,  it  is  argued  that  the  Central  Government  

should recalculate the amount based on the difference in bulk  

drug  prices  as  reviewed  and  notified  on  02.01.1989,  in  

compliance of the directions of the High Court.  

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The First Judgment of the Delhi High Court

19).       The submission of the learned Additional Solicitor General is in  

view of Para 17, 18 and 19 of the judgment in C.W.P. No. 1551 of  

1981, it is clear that the Order dated 26-11-1986 was not quashed  

and the Central Government was only asked to consider the review  

petition  filed  by  the  Respondent-Company.   At  this  stage,  it  is  

useful to extract Para 17 and 18 of the Judgment to understand the  

direction issued by the High Court:-

“17.   We  have  come  to  the  conclusion  that  the   interests  of  justice  require  that  the  respondents   should  give  the  petitioner  once  more  an  opportunity  of  being  heard  on  the  price  fixation  order of 1986. We, however, wish to make it clear  that we are not setting aside the order dt. 20-11- 1986 for this purpose; nor do we, in view of the   categorical  observations  of  the  Supreme  Court,   consider it necessary, proper or appropriate to stay   further implementation of the said order or to stay  any proceedings for  fixation  of  prices  of  various  drug  formulations  of  the  petitioner  which  that   respondents might wish to initiate. We would only   direct the petitioner to file a formal application for  review and the Government to deal with the same   (condoning the delay in filing the same due to the  pendency  of  this  writ  petition)  after  giving  the  petitioner a hearing on the lines indicated above   and, in the light of such hearing, to affirm or revise   the prices fixed by the order dt. 20-11-1986 and to  make consequent changes, thereafter, in the prices   for drug formulations, if fixed in the meanwhile.

20

18. We would also,  as was done by the Supreme  Court,  indicate  a  time  bound  schedule  for  the   course of action suggested above: (a) Within ten days from the date of receipt of this   order, the applicants may request the department  to furnish such specific information as it may need  as to the basis on which the figures  of   net    worth   of  

assets,  interest  on borrowings and rate  of  return   have been taken by them in respect of each of the   drugs and the department  should make the  same  available  to  the  petitioner  within  ten  days  thereafter;

(b)  Within  ten days  thereafter  the  petitioner  may  file a formal application for review of the order dt.   20-11-1986 with an application to condone delay.   This  application  should  not  content  itself  with  criticising  the  department’s  figures  but  should   specifically  set  out  petitioner’s  own  detailed   working out of the price to be fixed on the basis of   the annual and cost audit reports of the Company   for the period 1981 to 1985; (c)  The respondent should fix a hearing within a  period of 15 days from the date of receipt of the   application  and  the  petitioner  may  be  heard  thereon;’ (d)  Within  two weeks  thereafter,  the  respondents   may dispose of the application as they deem fit. In   case they allow it in whole or in part they should  pass  an  order  notifying  the  revised  prices  under   para 3 of the 1979 DPCO.

21

19.  The  writ  petition  is  disposed  of  accordingly   with no order as to costs. It is made clear that the   interim stay orders are vacated and the department   will be free to implement the order dt. 20-11-1986  as  well  as  to  proceed  to  fix  the  prices  for  the   petitioner’s  drug  formulation,  subject  to  the   outcome of the procedure indicated in the previous  para.”

The Impugned Judgment

20).     The  issue  decided  by the  Division  Bench  in  the  impugned  

judgment is whether the demands made by the Central Government  

for deposit of `71.21 crores was on the basis of the prices notified  

vide Order dated 2.1.1989 or Order dated 20.11.1986.  The High  

Court,  apart  from  others,  has  concluded  that  from  a  combined  

reading of paragraphs 15 to 19 of the directions of the Division  

Bench  in  the  first  judgment,  it  is  clear  that  the  High Court  has  

neither upheld the Order dated 26.11.1986 nor given any finality to  

the  same;  that  the  Central  Government,  for  the  purpose  of  

considering  the  Review Petition  filed,  pursuant  to  the  directions  

issued in the first judgment, the matter was referred to the Murthy  

Committee and that the Murthy Committee has conducted the price  

re-fixation of bulk drugs in accordance with the directions that was  

issued by the High Court.  The Murthy Committee has taken into  

22

consideration the weighted average figures from 1980-81 to 1984-

85 and refused the request of the Respondent-Company to consider  

the cost of production for the later years, which clearly shows that  

the Committee focused only on the Order dated 26.11.1986 and not  

thereafter;  that it  was apparent that the prices fixed by the order  

dated 20.11.1986 were based on the costing of the year 1981 only,  

whereas the one dated 2.1.1989 was based on the weighted average  

cost figures from the year 1981 to 1985; that the notings on the file  

and  the  statements  of  the  Hon’ble  Minster  on  the  floor  of  

Parliament indicate that the prices that were re-fixed by the Murthy  

Committee were accepted.  

21).       The High Court has also rejected the contention of the Central  

Government that there was an implied rejection of the review as  

there was no notification to that effect. It is also noted that there  

was  no  communication  from  the  Central  Government  to  the  

Respondent-Company expressing that the review had been rejected  

at any stage.  The Court has also observed that there was a letter  

dated  20.3.1989  by  the  Central  Government  to  the  Respondent-

Company informing them that the revised prices of bulk drugs was  

with effect from 12.5.1981, and this was enough to show that the  

23

Respondent-Company was notified  that  the  order  dated 2.1.1989  

held the field in place of the order dated 26.11.1986.  It was also  

noted by the High Court that even though the word ‘retrospective’  

was not mentioned in the notification dated 02.01.1989, if it were  

not  construed  retrospectively,  the  order  impugned  would  be  in  

violation  of  the  directions  of  the  Division  Bench  in  the  first  

judgment.  

22).        The High Court, after considering the language of para 3 to 17 of  

the DPCO 1979, has taken the view that the Central Government  

was not justified in considering the prices of the formulations under  

Para 7(2)(a) of the DPCO 1979 for determining the excess amount.  

The reasons and conclusion so reached by the Delhi High Court is  

the subject matter of this appeal.   

Our Conclusion  

23)      To our mind, after hearing the learned counsel, the undisputed  

facts  appears  to  be  that  the  Respondent-Company,  as  required  

under  para  5  and  14  of  DPCO 1970,  had  informed the  Central  

Government the selling prices/notional  prices of their bulk drugs  

manufactured and sold and also the retail prices of the formulation  

of  these  drugs.   The  maximum selling  prices  of  these  drugs  so  

24

informed/proposed by the  respondent-company was approved  by  

the Central Government.          

The Central Government, in exercise of the powers conferred  

under para 3(1) of the Price Control Order 1979 by its order dated  

12.05.1981  had  fixed  the  maximum selling  prices  of  these  bulk  

drugs  manufactured  and  sold  by  Respondent  Company.   After  

receipt  of  the  said  order,  the  Respondent-Company  had  filed  a  

Review Petition dated 23.06.1981.  May be prior  to or  after  the  

receipt of this representation, the Central Government, by its letter  

dated  29.06.1981,  had  informed the  Respondent-Company of  its  

liability to pay into DPEA the difference between the prices that the  

company was enjoying under Prices Control Order 1970 and the  

prices  as  notified  by  the  Central  Government  with  effect  from  

12.05.1981.  The Respondent-Company filed CWP 1551 of 1981  

before  the  High  Court  of  Delhi,  inter  alia,  seeking  a  writ  of  

certiorari of the notification issued by the Central Government on  

the ground that the notification issued by the Central Government  

fixing  the  maximum  selling  prices  of  the  three  bulk  drugs  

manufactured  and  sold  by  them  as  illegal,  arbitrary  and  

unconstitutional.   The  High  Court,  while  issuing  notice  of  the  

25

petition to the Respondents therein, granted the interim order dated  

01.07.1981,  inter  alia,  staying  the  implementation  of  any  

formulation prices for the three bulk drugs.  On a later date, the  

High  Court,  after  recalling  its  earlier  order  dated  01.07.1981,  

granted stay of the implementation of the bulk drug prices notified  

by the Central Government by its order dated 12.05.1981.  Since  

the Central Government passed yet another order dated 20.11.1986,  

the  Respondent-Company  by  way  of  amendment  of  the  relief  

sought in the writ petition, questioned the said order also. The High  

Court, by its order dated 31.08.1987, disposed of the petition with  

certain observations and directions, which we have already noticed  

in extenso.  Pursuant to the directions so issued, the Respondent-

Company filed review petition dated 09.03.1988 to review the order  

dated  20.11.1986.   The  Central  Government,  by  its  order  dated  

02.01.1989, in exercise of its power conferred by Sub-para (1) of  

para 3 of the Control Order 1987 and in supersession of the order  

dated 12.05.1981 in so far as the three bulk drugs, has fixed the  

maximum  price  at  which  the  indigenously  manufactured  drugs  

should  be  sold.   After  issuing  the  aforesaid  notification,  the  

Government by its  letter  dated 18.06.1990, after  referring to  the  

26

Judgment of Delhi High Court dated 31.08.1987, has stated that the  

Respondent-Company  has  not  been  authorized  to  retain  the  

amounts over charged by the company.  It is also stated that the  

prices of the bulk drugs fixed on 20.11.1986 based on the direction  

issued by the High Court is also not disturbed and the Court is also  

authorized to fix the prices of the formulations.  Accordingly, the  

Central  Government,  vide  their  letters  dated  18.06.1990  and  

16.11.1990, made a tentative demand of  `66.35 crores, which was  

subsequently  revised  based  on  the  data  made  available  by  the  

Respondent Company to `71.21 crores payable by the Respondent-

Company  to  be  deposited  into  DPEA.   These  were  those  

orders/letters  which were impugned by the Respondent-Company  

by filing CWP 2170 of 1990 before the High Court.  

24).     The  Central  Government,  exercising  its  powers  under  the  

Essential  Commodities Act, 1955, had promulgated DPCO 1970.  

Para 3 of this order empowered the Central Government to fix the  

maximum  selling  price  of  an  essential  bulk  drug  specified  in  

Schedule-I appended to the order.  However, the three bulk drugs  

manufactured  by  the  Respondent-Company  were  covered   under  

DPCO 1979, and empowered the Central  Government  to fix the  

27

maximum  prices  thereof.   Para  17  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  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  

account from those manufacturers who were selling or utilizing the  

bulk drug 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  manufactured  drugs  as  well  as  the  

drugs imported, so as to maintain uniformity in the price of bulk  

drugs.

25).       As of now, we have three notifications.  The first one is dated  

12.05.1981, wherein the Central Government fixed the maximum  

sale  prices  of  the  aforesaid  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  

28

notifications were subject matters of the writ petitions filed before  

the  Delhi  High  Court.   Pursuant  to  the  directions  issued  in  the  

aforesaid writ petition, the Central Government has now issued the  

notification  dated  02.01.1989.   It  is  this  notification  which  the  

Central Government contends is prospective in its operation but the  

Respondent-Company claims that it relates back to the notification  

dated 12.05.1981.  

26).       To appreciate the controversy raised in this appeal, it would be  

useful to extract the Gazette Notification dated 02.01.1989 issued  

by  the  Central  Government  under  Drugs  (Prices  Control)  Order  

1987 :-      

S.O.6(E)  – In exercise  of  the  powers conferred by   sub paragraph (1)  of  paragraph 3  of  the  Drugs (Prices   Control) Order, 1987, and in supersession of the order of   the  Government  of  India  in  the  erstwhile  Ministry  of   Petroleum,  Chemicals  and  Fertilizers  (Department  of   Chemicals and Fertilizers) No. S.O. 373 (E) dated the 12th  May,  1981,  in  so  far  as  it  relates  to  the  drugs  ‘Betamethesone  Alcbhol’,  ‘Betamethasone’  ’17-Valerate’   and ‘Betamethasone Di-sodium Phosphate’ against serial   numbers 1 to 3, the Central Government hereby fixes the   prices specified in column (3)  of  the Table below as the   maximum price  at  which  the  indigenously  manufactured   bulk drug specified in the corresponding entry column (2)   thereof shall be sold :-

29

TABLE  

S.No Name of the Bulk Drug Maximum price  (Rs. Per gramme)

1. Betamethasone Alcohol 144.19 2. Betamethasone Valerate 136.50 3. Batemethasone Di-Sodium  

Phosphate 144.58”

27).      The aforesaid notification is issued by the Central Government  

in supersession of the earlier Notification issued by the Government  

of  India  No.  S.O.  373(E)  dated  the  12th May,  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.  According to the Revenue, the  

notification is prospective and the notification issued earlier would  

hold the field till the impugned notification is issued.  However, it  

is the stand of the Respondent-Company that the notification dated  

02.01.1989 is retrospective in its operation and relates back to first  

notification issued by the Central Government dated 12.05.1981.

28).       The impugned notification uses the expression “supersession”  

of the earlier notification.  Therefore, the first question that requires  

to be considered and answered by us is, what is the meaning of the  

30

expression “supersession” and what is its effect.  Webster’s Third  

New International  Dictionary defines  the  word “supersession” to  

mean ‘the State of being superseded’, ‘removal’ and ‘replacement’.  

P.  Ramanathan  Aiyar’s  Advanced  Law  Lexicon  defines  

‘superseded’  as  `set  aside’  and  `replaced  by’.  The  view  of  this  

Court in some of the decisions is that the expression “supersession”  

has to be understood to amount ‘to repeal’ and when notification is  

repealed, the provisions of Section 6 of the General Clauses Act  

would not apply to notifications.  The question whether statutory  

obligations  subsist  in  respect  of  a  period  prior  to  repeal  of  a  

provision of a Statute or any subordinate legislation promulgated  

thereunder has to be ascertained on legal considerations apposite to  

the particular context.  The matter is essentially one of construction.  

Such problems do not admit of being answered on the basis of any  

single principle or legal consideration.  When the fresh notification  

was issued on 02.01.1989, the earlier notifications were superseded,  

could it be said that they became non est for all purposes and were  

unable to support the proceedings for the enforcement of liability  

incurred for the period prior to 1989.  To hold so, would produce  

the anomalous results.  The answer, in our opinion, must depend on  

31

proper  construction  to  be  placed  on  the  notification  themselves.  

The  point  to  be  noted  is  that  the  notification  dated  26.11.1986  

became effective from 12th day of May, 1981.  This notification,  

fictionally must be held to have subsisted and were operative from  

such points of time of their commencement upto the date it  was  

superseded.  The position here is somewhat analogous to the one  

considered in the case of  State of Orissa Vs. Titaghur Paper Mills   

Company Ltd. AIR 1980 SC 1293.  In the said decision, the effect of  

supersession of notifications under Orissa Sales Tax Act came up  

for consideration.   Referring to the effect  of  supersession of the  

notification, this Court observed :-

“The  word  “supersession”  in  the  notifications   dated  December  29,  1977 is  used in  the  same  sense  as  the  words  “repeal  and  replacement’   and therefore, does not have the effect of wiping   out  the  tax  liability  under  the  previous  notifications.   All  that  was  done  by  using  the  words  in  supersession  of  all  previous   notifications in the notifications dated December  29,  1977,  was  to  repeal  and  replace  previous  notifications  and  not  to  wipe  out  any  liability   incurred under the previous notifications.”     

29).   In  Titaghur’s  case,  the  specific  question  whether  on  

“supersession”  of  a  notification,  the  liability  to  tax  for  a  period  

prior to the supersession was wiped out or not, directly arose and  

32

was  considered.   This  Court  came  to  the  conclusion  that  the  

previous liability to tax for a period prior to the supersession was  

not wiped out.  In our view, 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 depends on the intendment of the law as could be  

gathered from the provisions in accordance with accepted cannons  

of construction.  The question whether the liability for payment of  

difference amount incurred by the  respondent-company could be  

enforced  after  the  order  dated  02.01.1989  passed  under  DPCO  

1987, when the notification was superseded clearly falls within the  

principles laid down in Titaghur Mills case.  It is no doubt true that  

in some cases, there are statements which admit the construction  

that once a notification is ‘superseded’,  it  amounts to repeal and  

that Section 6 of the General Clauses Act has no application to such  

cases.  If that principle is applied, then after 12th day of May, 1981,  

the notification becomes unavailable to Central Govt. to give effect  

to the notification issued under DPCO 1979, even in respect of the  

period when the notification must be deemed to have been in force.  

33

The notification in this 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.   We may also usefully refer to the observations  

made by Kaul, J. in  Nand Kishore Vs. Emperor, AIR 1945 Oudh  

214.  It  is stated “that the effect of an Act or an order which is  

superseded  is not to obliterate it altogether.  An 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. In  

Syeda  Mustafa  Mohamed  Gouse  Vs.  State  of  Mysore  (1963)  1   

Crl.L.J. 372 (Mys), the Sugar (Movement Control) Order 1959, of  

6th November,   1959  was  passed  in  supersession  of  the  Sugar  

(Movement Control)  Order,  1959,  dated 27th July,  1959.   It  was  

held that in law `supersession’ has not the same effect as repeal and  

proceedings  of  a  superseded  order  can  be  commenced.   In  R.S.   

Anand Behari Lal Vs. Government of U.P. (AIR 1955  NUC 2769  

All), it was held that in case of supersession of  a notification, the  

objections  and  liabilities  accrued  and  incurred  under  the  earlier  

notification  remain  unaffected,  since  the  supersession  will  be  

effected  from  the  date  of  second  notification  and  not  

34

retrospectively, so as to abrogate the earlier notification from the  

date of its commencement.  In view of the above discussion, we are  

of the view that 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.   

30).      We now deal with the concept of `review’ that finds a place in  

para 27 of the DPCO 1979.  What is contemplated in this  provision  

is  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 Gazette.  After  

receipt  of  the  application/review  petition,  the  Government  may  

make such order on the application as it may consider necessary.  

What is the scope of the review that is contemplated under Drugs  

(Prices Control Order) is explained by this Court in  Cyanamide’s   

case (supra).  It is observed that the review in para 27 of DPCO  

1979 is in the form of a post decisional hearing which is sometimes  

afforded after the making of some of the administrative orders, but  

not  truly  so.   “It  is  a  curious  amalgam  of  a  hearing  which  

occasionally precedes a subordinate legislative activity such as the  

35

fixing of municipal rates etc. that we mentioned earlier and a post-

decision  hearing after  the  making  of  an administrative  or  quasi-

judicial order. It is a hearing which follows a subordinate legislative  

activity intended to provide an opportunity to affected persons such  

as the manufacturers, the industry and the consumer to bring to the  

notice  of  the  subordinate  legislative  body  the  difficulties  or  

problems  experienced  or  likely  to  be  experienced  by  them  

consequent on the price fixation, whereupon the government may  

make appropriate orders. Any decision taken by the Government  

cannot be confined to the individual manufacturer seeking review  

but must necessarily affect all manufacturers of the bulk drug as  

well as the consumer.  Since the maximum price of a bulk drug is  

required by Para 3 to be notified, any fresh decision taken in the  

proceeding  for  review by  way  of  modification  of  the  maximum  

price  has  to  be  made  by  a  fresh  notification  fixing  the  new  

maximum price of the bulk drug. In other words, the review, if it is  

fruitful,  must  result  in  fresh subordinate  legislative  activity.  The  

true nature of the review provided by Para 27 insofar as it relates to  

the  fixation  of  maximum price  of  bulk  drugs  under  Para  3  and  

leader price and prices of formulations under Paras 12 and 13 is  

36

hard to define. It is difficult to give it a label and to fit it into a  

pigeonhole,  legislative,  administrative  or  quasi-judicial.  Nor  is  it  

desirable to seek analogies and look to distant cousins for guidance.  

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 legislative review of  

legislation, or more precisely a review of subordinate legislation by  

a  subordinate  legislative  body  at  the  instance  of  an  aggrieved  

person.”

31).       In the present case, the Central Government was directed by  

the High Court in the first judgment to consider 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 bulk  

drugs were being fixed.  The Court specifically observed that in the  

interest of justice, the Respondent-Company should be given one  

more  opportunity  of  being  heard  on  the  price  fixation  order  of  

1986.  The Court further made it clear that they are not setting aside  

the order dated 20.11.1986 or staying further implementation of the  

37

said order or stay any proceedings for fixation of prices of various  

drug  formulation  of  the  Respondent-Company  of  which  the  

appellants – Central Government may wish to initiate.  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 and to make consequent  

changes  in  the  prices  for  drug  formulations,  if  fixed  in  the  

meanwhile.  

32).      In our view, a reading of the observations made by the Court,  

would  indicate  that  it  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 Govt., taking clue  

from the directions issued by the Court, which order has become  

final, has passed the impugned Notification dated 02.01.1989, by  

refixing the prices of drug formulations by applying the provisions  

contained in DPCO 1989.  In view of the above, it is difficult for us  

to find fault with the exercise done by Central Government while  

notifying the  impugned notification.  In our considered view,  the  

38

notification so issued is in accordance with the observations made  

by this Court in Cyanamide case (supra) wherein it is stated :-

“...............since the maximum price of a bulk   drug is required by paragraph 3 to be notified   any fresh decision taken in the proceeding for   review  by  way  of  modification  of  the   maximum price  has  to  be  made  by  a  fresh  notification fixing the new maximum price of   the bulk drug.  In other words, the review if it   is fruitful it must result in fresh subordinate  legislative activity.”   

These observations of this Court in Cyanamide case, in our  

view, supports the stand of the Revenue, that once a 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 to the notification fixing the prices of bulk drugs issued  

earlier.   

33).        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 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 was much  

higher  than  those  notified  by  the  Central  Government,  while  

39

issuing the notification dated 20.11.1986.  In our view, that itself  

will  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 we have already said is only prospective and  

not  retrospective  as  contended  by  learned  counsel  for  the  

Respondent-Company.  Hence, we are of the view that there was  

no  implied  rejection  of  the  recommendations  of  the  Murthy  

Committee.     

      34) Therefore,  firstly,  it  cannot  be  said  that  the  Central  

Government  while  considering  the  review  petition  filed  by  the  

Respondent-Company had disregarded the direction issued by the  

Delhi High Court in its first judgment.  Secondly, the contention of  

the respondent-company that the price fixation order of 02.01.1989  

was the result of decision taken by the Central Govt. on the review  

petition  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.   We  also  add,  since  the  notification  dated  

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02.01.1989 fixing prices of bulk drugs is prospective,  the earlier  

notification would operate during the intervening period.   

To sum up, our findings in regard to the first and third issues  

are as under :-

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.   

ii) The supersession of a notification does not obliterate the  

liability incurred under the earlier notification.   

35) Now to answer the second issue, viz.  whether the demand  

raised under para 7(2)(a)  of DPCO 1979, should be computed on  

the  basis  of  difference  in  bulk  drug  prices  or  on  the  basis  of  

difference in formulation prices, it is necessary to extract para 7 of  

DPCO 1979 and the other relevant paras in DPCO 1979. Para 7  

reads:    

“7. Power to fix retention price and pooled price for  the sale of bulk drugs specified in First Schedule or  Second  Schedule  indigenously  manufactured  as  well as imported – (1) Where a bulk drug specified  in  the  First  Schedule  or  the  Second  Schedule  is  manufactured  indigenously  and  is  also  imported,  the  Government  may,  having  regard  to  the  sale  

41

prices  prevailing  from time to  time  in  respect  of  indigenously manufactured bulk drugs and those of  imported  bulk  drugs,  by  order,  fix,  with  such  adjustments  as  the  Government  may  consider  necessary –  (a) retention  prices  for  individual  manufacturers,  

importers, or distributors of such bulk drugs; (b) a pooled price for the sale of such bulk drugs (2) Where a manufacturer of formulations utilises  in the formulations any bulk drug, either from his  own production or procured by him from any other  source,  the  price  of  such  bulk  drug  being  lower  than the price allowed to him in the price of  his  formulations  the  Government  may  require  such  manufacturer –  (a)  to  deposit  into  the  Drug  Prices  Equalisation  Account  referred  to  in  paragraph  17  the  excess  amount to be determined by the Government; or (b) to sell the formulations at such prices as may be  fixed by the Government”.

36)    Para 8 speaks of prices of bulk drugs produced through  

indigenous research and development, Para 9 authorises the Central  

Government to direct manufacturer of  bulk drugs to sell bulk drugs  

to  manufacturers  of  formulations,  Para  10  provides  for  the  

calculation of retail prices of the formulations, Para 12 authorises  

the  Central  Government  to  fix  retail  prices  of  formulations  

specified in Category III of Third Schedule, Para 14 provides for  

general provisions regarding prices of formulations, Para 15 speaks  

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of   power  of  the  Central  Government  to  revise  prices  of  

formulations, Para 17 speaks of Drug Prices Equalisation Account  

(DPEA).  The other paras may not be relevant to be noticed for the  

purposes of this case.  

37)     Para 7 of the DPCO, 1979 is in two parts.  Sub-para (1) of  

Para-7 authorises the Central Government to 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 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  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  of  bulk  drugs  and the  second the  

difference  based  on  common  selling  prices  of  the  formulations.  

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Para 17 of DPCO 1979, as we have already stated, authorizes the  

Central  Government  to  maintain  DPEA comprised of  the  grants  

made  by  the  Government,  deposits  to  be  made  by  the  

manufacturers, importers and distributors of the drugs.   

38) The Respondent-Company in the month of June, 1990 and  

November, 1990 received a demand on the allegations that the  

Respondent-Company had over charged for the bulk drugs as  

well as formulations being manufactured by it.  These demands  

are based on the prices fixed by order dated 20.11.1986.  The  

Respondent-Company  had  questioned  this  demand  before  the  

High Court primarily on the ground that the sale prices of the  

formulations cannot not be taken into consideration and only the  

cost  of  bulk  drugs  consumed  in  those  formulations  could  be  

taken into consideration for making calculations.  The prayer in  

the  writ  petition  was  to  direct  the  Central  Government  to  

reassess and calculate  the demand on the basis of the revised  

bulk  drug  prices  fixed  on  02.01.1989,  instead  of  taking  into  

consideration the prices of the formulations and to consider the  

excess amount on the basis of prices of bulk drugs used in the  

formulations.   The  stand  of  the  Central  Government  in  the  

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affidavit filed before the High Court was that  the prices of the  

bulk drugs had been fixed vide their order dated 12.05.1981 and  

20.11.1986, but the prices of the formulation could not be fixed  

because  of  the  stay  granted   by  the  Court  and  as  such  the  

Respondent-Company was bound to charge only prices as were  

liable to be fixed under the DPCO 1979.  They had also stated  

that the Respondent-Company was entitled to charge such prices  

for its bulk drug as was fixed by the price fixation order dated  

20.11.1986 or liable to be fixed for formulations under DPCO of  

1979 and was bound to  deposit  the  over  charged amounts  to  

DPEA.

39)   The learned senior counsel Shri. Andhyarujina submits  

that Para 7(2)(a) read with Para 17 of DPCO 1979 makes it clear  

that the Scheme of the DPCO 1979 was to encourage domestic  

production  of  bulk  drugs  through  a  system  of  retention  and  

pooled pricing.  It is also submitted that para 17(2) and (3) sets  

out the manner in which the DPEA was to be utilized and how a  

manufacturer  of  bulk drugs could make a claim in respect  of  

bulk  drugs  manufactured  by  it  from DPEA.   Therefore,  para  

7(2)(a)was  never  intended  to  cover  prices  of  formulation  but  

45

only  the  differences  in  the  price  of  bulk  drugs  used  in  

formulations  which the  manufacturer  can be asked to  deposit  

into the DPEA under para 7(2)(a).   However,  it  is  argued by  

learned counsel for the Central Government that the expression  

“excess amount to be determined by the Government” in para  

7(2)(a)  of  DPCO  1979  gives  a  wide  discretion  to  the  

Government  in  the  matter  of  determining  the  amount  

recoverable under the para and, therefore, the Government was  

justified  in  raising  the  demand  taking  into  consideration  the  

difference between the common selling prices and the price of  

the formulations.  

       40)         It is a cardinal principle of interpretation that a statute must  

be read as a whole. Lord Herschell in the case of Colguhoun v.   

Brooks, (1889) 14 AC 493, aptly pointed out:

“It is beyond dispute, too, that we are entitled, and  indeed  bound,  when construing  the  terms  of  any  provision found in a statute, to consider any other  parts of the Act which throw light on the intention  of  the  legislature,  and which  may  serve  to  show  that  the  particular  provision  ought  not  to  be  construed as it would be alone and apart from the  rest of the Act.”  

46

       41).        This Court in the case of  Phillips India Ltd. v. Labour  

Court, (1985) 3 SCC 103 has observed :

“15.  No  canon  of  statutory  construction  is  more  firmly established that the statue must be read as a  whole.  This  is  a  general  rule  of  construction  applicable to all statutes alike which is spoken of as  construction  ex  visceribus  actus……The  only  recognized  exception  to  the  well-laid  principle  is  that it cannot be called in aid to alter the meaning  of what is  of  itself  clear  and explicit.  Lord Coke  laid down that: “it is the most natural and genuine  exposition  of  a  statute,  to  construe  one part  of  a  statute by another part of the same statute, for that  best  expresseth  meaning  of  the  makers”  (Quoted  with  approval  in  Punjab  Beverages  Pvt.  Ltd.  v.  Suresh Chand, [(1978) 2 SCC 144])”

        42). To  our  mind,  the  grievance  of  the  respondent-

company which was projected before the High Court and also  

before us is that the impugned demands were in violation of Para  

7(2)(a) of DPCO 1979, mainly for the reason that they were not  

computed on the basis of difference in the prices of bulk drugs  

but on the difference between the prices of bulk drugs and the  

prices  of  formulations  in  which  the  company had used those  

bulk drugs.  The appellants/Central Government while justifying  

the impugned demand had contended before the High Court and  

even before us,  that the prices  of bulk drugs were fixed vide  

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orders  dated  12.05.1981,  which  were  revised  by  order  dated  

20.11.1986, but the formulations could not be fixed because of  

the  interim  order  granted  by  the  High  Court  and,  ergo,  the  

respondent-company  is  liable  to  deposit  into  DPEA  the  over  

charged amount in respect of their formulations also.   

43) To resolve the controversy on this issue, it is necessary to  

notice the impugned demands raised by the appellants/Central  

Government dated 16th November, 1990.  The relevant portion is  

extracted by omitting what is not necessary for the purpose of  

considering the issue before us.  They are as under:-

“Subject: Recovery into the Drug prices Equalisation   Account  in  respect  of  Betamethasone  and  its   formulations.

Dear Sirs,  

I am directed to refer to your letter dated the  17th September, 1990 on the above subject and to say   that  the  liability  of  your  company upto 25th August,   1987  has  since  been  determined  based  on  the   available data.  The details are as under:-

(i) Bulk drugs sold to others

(a) Attached  statement  at  Annexure-I  gives   the details of your liability of Rs.23.62 lakhs in   respect of the bulk drug.

(ii) Formulations and bulk drug captively used.

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(b) The  liability  in  respect  of  16th packs  of   formulations has been determined at Rs.7121.03  lakhs as per details annexed.

(c) Liability  in  respect  of  8  packs  of   formulations have been worked out at Rs.33.53  lakhs subject to your company making available   the  details  of  the  packs  produced  and  sold   during 12th May, 1981 and 30th June, 1981.  The   liability  in  respect  of  these  8 packs  would  be   finalized after these details are received.

2. While  determining  the  liability  the  prices   charged by your company based on the stay granted   by the  Hon’ble  Delhi  High Court  and the prices  to  which your company would have been entitled had the   stay  not  been  granted  have  been  taken  into   consideration.  The prices to which your company was   entitled to are shown in column 5 of the statement and  these prices have been worked out by the Expert Body,   namely,  Bureau (sic.)  of Industrial  Costs and prices  based on the price of the bulk drug as upheld by the   High Court and other parameters like conversion cost,   packing  charges,  packing  materials  excipients  (sic.)   etc.   As  prevalent  in  May,  1981,  the  norms  of   conversion cost and packing charges for formulations  have also been upheld by the Hon’ble Supreme Court.

3. Liability in respect of two packs of formulations  indicated  at  S.No.17  and  18  (sic.)  would  be   communicated  to  you  after  the  details  of  the  price   prevailing on 12th May, 1981 and the basis thereof are   communicated to the Government.

4. The  liability  in  respect  of  6  packs  of   formulations  would  be  finalized  after  the  details  of   packs  produced/sold  during  12th May,  1981  to  30th  June, 1981 are made available.  It is brought to your  notice  once  again  that  as  already  advised  in  this   Ministry’s  letter  of  even  number  dated  the  20th  September, 1990 and as directed by the Hon’ble High  

49

Court vide its orders dated the 9th August, 1990 your  company  is  still  to  make  available  the  details  in   respect  of  bulk  drug  Betamathasone  and  its   formulations after 25th August, 1987.  Please expedite   these details also so that your liability can be finalized  for this period as well.

Yours faithfully,

Sd./- (J.L. Sharma)

UNDER SECRETARY TO  THE GOVERNMENT OF INDIA”

44).   Now let  us see how the High Court  has decided this  

issue.  The Court after noticing elaborately the intent, object and  

the possible construction that could be placed on paras 3 to 9  

and para 17 has observed that:

“Neither paras 3 to 9 nor para 17 of DPCO 1979  suggest that the amount to be deposited in DPEA  had  anything  to  do  with  the  prices  of  the  formulations which were being fixed in terms of  paras 10 and 11 of the said order.   Para 7(2) of  the  order,  which  speaks  of  utilization  of  bulk  drugs  in  the  formulations,  makes  it  abundantly  clear that the amount to be deposited into DPEA  in this regard related only to the common selling  price of bulk drug which was lower than the price  allowed to him in the price of his formulations.  As a natural consequence, therefore, the demand  for the amount to be deposited in DPEA account  could be based and calculated only on the basis  of the prices of the bulk drugs consumed in the  formulations  and  not  on  the  basis  of  notional  prices  of  formulations.   The  prices  of  the  

50

formulations,  therefore,  were not at  all  relevant  for  the  purpose.   Thus the impugned demands,  which  were  based  on  the  formulations  prices  suffer  from  the  vice  of  considering  the  formulations prices and not the quantity and the  price  of  the  bulk  drugs  consumed  therein.”  (Emphasis supplied)

45). In our view, the fallacy in the impugned judgment appears  

to  be  in  not  properly  analyzing  the  clear  meaning  of  the  

expressions used in para 7(2)(b) of DPCO 1979.   

46) 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  drugs  and  any  

formulations using those drugs or procured from outside, as in  

the present 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 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  

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manufacturer  of  formulations  to  sell  the  formulations  at  such  

prices as may be fixed by the Government.  

      47)                 The  Central  Government,  while  issuing  the  

letters/demand  dated  18.06.1990  and  16.11.1990,  has  

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  

notification  dated  20.11.1986,  the  respondent-company has  to  

deposit  into DPEA the difference between the retention price  

and pooled price for the sale of bulk drugs.  Similarly, since the  

respondent-company manufactures drug formulations by captive  

consumption of the bulk drugs, the Central Government initially  

could not fix the retention price of the 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  

respondent-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  

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their formulations over and above the prices fixed by the Central  

Government.  In our view, since the para 7(2)(a) of DPCO 1979  

does not  admit  a  construction  which the  respondent-company  

suggests, it is difficult to hold 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 formulations in which  

the company had used those bulk drugs.  

48). Before we conclude, it  is  important to mention that the  

respondent  company  (and  similar  companies)  not  only  

manufacture  bulk  drugs  but  also  use  them  for  their  drug  

formulations  for  its  supply  in  retail  vending and thereby,  the  

ordinary consumer is  burdened with a higher price than what  

they could have got at a lesser price.  Since that is taken care of  

in  para  17  of  DPCO  1979,  it  may  not  be  necessary  to  lean  

towards  the  submissions  made  by  learned  counsel  for  the  

respondent-company.   

49) In  conclusion,  we  would  only  say  that  none  of  the  

submissions  made  by  learned  counsel  for  the  respondent-

company  were  worth  accepting.   Accordingly,  we  allow this  

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appeal  and set  aside the order  passed by the  High Court  and  

thereby,  we  confirm  the  demands  raised  by  the  Central  

Government.   In  the  facts  and circumstances  of  the  case,  we  

deem it proper that the parties will bear their own costs.    

 ………………………………J.             [ R.V. RAVEENDRAN ]

                          ………………………………J.                                    [ H.L. DATTU]

New Delhi, March 30, 2011.

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