FACTS:
The Glaxo India Ltd. (hereinafter, “Respondent-Company”) was engaged in manufacture and sale of three bulk drugs and various formulations based on these bulk drugs. The Central Government promulgated the Drug (Price Control) Order, 1979, replacing Drugs (Price Control) Order, 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. Sub-Para 3(2) provides that while fixing the price of a bulk drug, the Government may take into account the average cost of production of such bulk drug.
In exercise of the powers so conferred, the Central Government had fixed the maximum price of the above mentioned bulk drugs. The Respondent-Company had called in question the legality and validity of the price fixation order before the High Court of Delhi, 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. Pursuant to the direction of the Court to reach a settlement, the Respondent-Company made available the actual cost of production of bulk drugs. The Central Government then re-fixed the price of the three bulk drugs mentioned above with retrospective effect. Aggrieved by the same, the Respondent-Company amended the relief claimed in the pending proceedings before the High Court.
The Division Bench of the High Court disposed of the writ petition. However, the Court did not quash the impugned price fixation order 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.
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. The Government issued price fixation order, fixing the price for three Bulk Drugs higher than the earlier price. 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 to be deposited by the respondent-company. The High Court, however, 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. The same has been called in question by the Union of India in this appeal.
ISSUES FOR CONSIDERATION:
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. to deposit an amount of 71.21 crores in the Drug Prices Equalization Account?
iii) What is the effect of ‘supersession’ of a notification and when such supersession is made, would it have the prospective or retrospective effect?
SUBMISSIONS OF THE APPELLANT – Union of India:
It was argued that the Murthy Committee constituted to examine the review petition 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. It was 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 the Apex Court in Union of India v Cyanamide India Ltd., (1987) 2 SCC 720. By placing reliance on these material, it was put forth, that the recommendations of the Murthy Committee were to come into effect prospectively.
It was 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.
SUBMISSIONS OF THE RESPONDENT-Company:
It was submitted that there is a basic difference between ‘review’ and ‘revision’ 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 was further argued that the situation contemplated for deposit 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. It was submitted that the doctrine of contemporaneous exposition demanded that the settled understanding of Para 7(2)(a) should be continued.
DECISION OF THE SUPREME COURT:
The Apex Court came to the conclusion that none of the submissions made by learned counsel for the respondent-company were worth accepting. Accordingly, the appeal was allowed and the order passed by the High Court was set aside and thereby, the demands raised by the Central Government were confirmed.