Malladi Drugs and Pharmaceuticals Ltd. vs Government of India

A.S. Venkatachalamoorthy, J.—The above writ petition has been filed praying this Court to issue a writ of Certiorari calling for the records

in proceedings F. No. 27(25)90-P1-I dated 9.11.1995 on the file of third respondent herein and quash the same.

The case of the petitioner, which is a Company called M/s Malladi Drugs & Pharmaceuticals Limited, having its registered office at No. B-211,

11th Avenue, Ashok Nagar, Madras, is as follows,

The petitioner Company was started in the year 1980 and which has been manufacturing Ephedrine Hydrochloride and Pseudo Ephedrine

Hydrochloride, which are life saving drugs for Asthma, Whooping Cough etc. Originally, the Company was manufacturing Ephedrine

Hydrochloride based on the research work done by M/s. C.D.R.I., Lucknow, which is the basic manufacturer. A certificate in this regard for the

petitioner was issued by the Director, Department of Science and Technology, Government of India on 22.9.1984. The Company, which is having

a research wing of its own, developed indigenous technology recognised by the Department of Science and Technology for the manufacture of

Ephedrine Hydrochloride. The Director of the Department of Science and Technology in his proceedings dated 27.9.1989, accorded recognition

for the In-house Research and Development Unit of the petitioner firm at Ranipet upto 31.3.1991. Subsequently in proceedings dated 13.9.1991

recognition of In-house Research and Development Unit was renewed upto 31.3.1994 and again by proceedings dated 4.5.1994, it was renewed

upto 31.3.1997. Despite the achievements, the petitioner Company suffered major set back on the financial front resulting in accumulated loss to

the tune of Rs.222.46 lakhs as on March, 1987 and according to the petitioner, the same is due to the delay in price fixation, low production due

to restrictions imposed, etc. From September, 1987, the Petitioner Company has been able to manufacture commercial products.

A representation dated 10.6.1988 was made by the petitioner to the Chairman, Kelkar Committee, Price Fixation Control, New Delhi, which was

constituted to consider all matters connected with Revision of Drugs (Price Control) Order, 1987, including inclusion/exclusion of Drugs in the

schedule category. A petition dated 14.7.1988 was also sent by the Company to the first respondent requesting for exclusion of their drugs from

Category-II of Drugs (Price Control) Order, 1987. The Kelkar Committee recommended for exclusion of bulk drugs produced by the Company

as per the report published in the newspaper dated 16.1.1989. The power to exempt drugs on the ground of production of bulk drugs from basic

stage through indigenous Research and Development was included in para 28 by S.O.82(E) dated 18.1.1989. Subsequently on 24.1.1989, the

petitioner sent a representation to the first respondent and requested for exemption as recommended by the Kelkar Committee.

On 14.1.1989, the second respondent issued guideline No. 1/89 in exercise of powers conferred by paragraph 25 of the Drugs (Price Control)

Order, 1987 for the purpose of grant of exemption under para 28 of the order to such bulk drugs manufacturing unit from the provisions of para 3

of the said order in respect of 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 work for a specified period not exceeding five years reckoned from the date of commencement of commercial

products of such bulk drugs. As required therein, the petitioner made an application on 11.3.1989 with all details and requested for exemption of

the bulk drugs manufacture by the company from the provisions of para 3 of the Drugs (Price Control) Order, 1987. The second respondent, who

processed the application, by his letter dated 20.6.1989, called upon the petitioner to furnish the certificate from the Department of Scientific and

Industrial Research to the effect that the drugs manufactured by the company are being manufactured from the basic stage by process developed

through indigenous and development units. The petitioner company complied with the request by sending it along with their letter dated 29.6.1989.

As there was no response thereafter, the petitioner Company again by their letter dated 31.10.1989 and 6.3.1990, sent reminders. On 16.4.1990,

second respondent sent a letter to the petitioner company calling for certain details and the same were accordingly furnished. Finally on

12.11.1990, the Joint Secretary to the Government of India passed an order S.O.862(E) dated 12.11.1990 and exempted Ephedrine

Hydrochloride and its formulations manufactured by the petitioner company for the period upto 31.3.1992. The exemption that has been granted

has to be for the period from the date of commencement of Commercial products of bulk drugs, that is to say from 30.9.1987 to 31.3.1992.

The further case of the petitioner is that the Under Secretary to Government of India, by his letter dated 4.12.1990 informed the petitioner that the

petitioner company over charged the price of Ephedrine Hydrochloride at Rs.67/- per kg from 15.4.1988 to 24.8.1989 and at Rs.634/- per kg

between September 1989 to 23.3.1990. It is further alleged that the petitioner company unilaterally increased the price without any prior approval

of the Government and in contravention of para 3(3) of the Drugs (Price Control) Order, 1987. The Petitioner Company was called upon to

deposit a sum of Rs.1,16,29,917/- under paragraph 16 of the Drugs (Price Control) Order, 1987 and was also called upon to show cause as to

why the above amount should not be recovered from the petitioner Company. The petitioner company gave explanation by letter dated

21.12.1990 wherein it claimed that the period mentioned in the showcase notice is covered by the exemption order granted in favour of the

petitioner Company. The second respondent by letter dated 26.3.1992 once again called for explanation as though the petitioner did not send any

reply. In this connection, petitioner sent reply dated 29.4.1992. With reference to the reply submitted to the showcase notice, an enquiry was

conducted on 6.7.1993. The petitioner received a letter dated 16/22.8.1995 from the Desk Officer, calling for certain information, which was also

furnished by the petitioner by letter dated 13.9.1995. Finally, third respondent has passed the impugned proceeding holding that the petitioner

Company over charged the price of bulk drugs Ephedrine Hydrochloride for the period from 15.4.1988 to 23.3.1990. Petitioner Company having

commenced commercial production with new technology from 30.9.1987, the exemption granted till 31.3.1992 by order dated 12.11.1990 has to

be reckoned from the date of commercial production date i.e, 30.9.1987. Since the period of overcharging of price of bulk drug Ephedrine

Hydrochloride is from 15.4.1988 to 24.8.1989 and September, 1989 to March, 1990, and the said period are covered between 30.9.1987 to

31.3.1992, it is the exempted period as per the order dated 12.11.1990 issued by the respondent. According to the petitioner, the respondents

have no right to initiate any proceeding and the alleged claim of Rs.1,34,61,864/- is illegal and not valid in law.

A Counter affidavit has been filed on behalf of the respondents by the Director of National Pharmaceutical Pricing Authority, Ministry of

Chemicals and Petrochemicals and fertilizers, New Delhi.

In the said counter affidavit, the deponent would state that the Control on the prices of drugs and pharmaceuticals was introduced for the first time

in 1962 in the wake of the Chinese aggression basically in order to keep the prices at reasonable level so that the interests of the consumers could

be protected. The Drugs (Display of Prices) Order, 1962 and the Drugs (Control of Prices) Order, 1963 were promulgated under the Defence of

India Act, freezing the prices of medicines. However, comprehensive orders were issued subsequently under the Essential Commodities Act,

1955. In the counter affidavit it is further stated that Section 2(a) of the Essential Commodities Act confer powers upon the Central Government to

control production, supply, distribution etc., of Essential Commodity, inter-alia providing for controlling the prices at which Essential Commodity

may be bought or sold. It is only in exercise of powers u/s 3 of the said Act, the Central Government made the Drugs (Price control) Order, 1995

repealing the earlier order of 1987. The said order empower the Central Government to fix the maximum sale price of Scheduled bulk drugs as

well as retail price of its formulations and the Government is empowered to recover the amount overcharged by the

manufacturer/importer/distributor of Scheduled Bulk Drugs and Formulations under Drugs (Price Control) Order, 1987. When the Drugs (Price

Control) order, 1987 was repealed, the power of the Government to recover the overcharged amount was provided in para 13 of DPCO, 1995.

It is stated that the Drugs Price Control Order, 1987 was notified by the Government of India in exercise of powers conferred by Section 3 of the

Essential commodities Act, 1955 and as per the provisions of DPCO, 1987, 134 drugs were classified as Scheduled drugs under Schedule II of

DPCO, 1987. The Government was empowered under the provisions of DPCO, 1987 to fix the prices of Scheduled Bulk Drugs and related

formulations. As per the provisions, all the manufacturers of the said Bulk Drugs and related formulations were required to adopt the price fixed by

the Government within 15 days from the date of notification and in case, the manufacturers charge more than the price fixed, the Government of

India is empowered to recover the overcharged amount from the manufacturer under para 15 of DPCO, 1987. The Government is empowered to

exempt any drug manufacturing unit from the provisions of DPCO 1987 if the production of the Bulk Drug is from the basic stage, by a process

developed through indigenous research and development. It is explained that the Government of India in exercise of powers under para 28 of

DPCO 1987 issued guideline No. 1/1989 dated 14.2.1989 in respect of Bulk Drugs produced by a unit from the basic stage by a process of

manufacture developed through its Research and Development for specified period not exceeding five years from the date of commencement of

Commercial production subject to some terms and conditions. In addition to that, the Government of India also issued guideline No. 2/1989 dated

12.9.1989 in which it was inter-alia stated that exemption shall be available for a period of five years only from the date of approval by the

Government and the exemption from price control shall not be applied retrospectively.

According to the respondents, petitioner Company applied for exemption from price control under para 28 of DPCO, 1987 and their request for

price exemption was considered by the High Level Committee headed by Mr. Vijay Kelkar, who recommended for exemption of 13 bulk drugs

including the said drug from price control subject to the conditions that (a) the policy of OGL import of the said drugs would continue, (b) the said

formulations would continue to be under price control, and (c) the said bulk drugs were to be manufactured from the basic stage on indigenous

technology. In the meantime, guideline 1/89 dated 14.2.1989 and 2/89 dated 12.9.1989 under para 28 of DPCO 1987 were announced by the

Government of India. As per the guidelines, the application of any manufacturers for exemption of price control was to be certified by the

Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India. Since along with the application

petitioner did not furnish a certificate from DSIR, it was asked to do so. The petitioner company sent the said certificate in February, 1990. In

April, 1990, the Committee further made enquiries with DSIR and with the Petitioner Company as to whether the process improvement claimed

by the Company was cost-effective and genuine and in addition, the details of the process, areas of improvements, costing details, date of

commercial production were sought from the Company. After detailed examination by the Committee, the Department of Chemical and

Petrochemicals in its order dated 12.11.1990 granted exemption from the price control for Ephedrine Hydrochloride upto 31.3.1992 and the

company was informed accordingly. According to the respondents, it came to its knowledge from the Drug Controller, Madras that the Petitioner

Company overcharged the price of Ephedrine Hydrochloride and hence the Department of Chemical and Petrochemicals issued a show cause

notice dated 4.12.1990 directing the Company to deposit Rs.1,16,29,917/-, which was over charged by the Company under DPCO, 1987. In

the enquiry conducted, the Company took a stand that the exemption of five years ended on 31.3.1992, which means the exemption period

applicable from 1.4.1987 to 31.3.1992 and hence there was no over charging in this case. The sum and substance of the stand taken in the

counter affidavit is that as per the guidelines 1/89 and 2/89, the period during which exemption can be granted is five years from the date of

commercial production and that further the exemption shall be operative only from the date of order and would not operate retrospectively.

The petitioner company started manufacturing Ephedrine Hydrochloride and Pseudo Ephedrine Hydrochloride since 1984 based on the

research work done by M/s C.D.R.I., Lucknow, which is the basis for manufacture. Thereafter, it developed indigenous technology recognised by

the Department of Science and Technology, Government of India. The claim of the petitioner is that the Company developed indigenous

technology recognised by the Department of Science and Technology for manufacture of Ephedrine Hydrochloride and the same was recognised

by the Directorate of Science and Technology in its proceedings dated 27.9.1989 and such recognition was till 31.3.1997 as evidenced by various

proceedings. This claim of the petitioner has not been disputed. It is also not disputed that the petitioner sought for exemption from the Drugs

(Price Control) Order, 1987 and in fact there is no dispute that Kelkar Committee recommended the case of the petitioner. Of course, the

recommendation committee is not binding on the respondents and the respondents are at liberty to consider the matter independently and take a

decision.

Taking advantage of the Government''s decision to consider the requests from Bulk Drug Manufacturing Units to grant exemption from the

provisions of para 3 of the Drugs (Price Control) Order, 1987, if the bulk drug manufacture is from the basic stage by a process of manufacturing

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, the petitioner made an application on 11.3.1989. Nothing happened for two months and on 20.6.1989,

the Department of Chemical and Petrochemicals sent a communication wherein it is stated as under,

... It is, however, seen that you have not complied with one of the essential requirements i.e., furnishing of the certificates from the Department of

Scientific and Industrial Research in support of your contention that the said drugs are being manufactured by you from basic stage by process

developed through indigenous Research & Development. ...

This Court perused the relevant records and does not find anywhere that petitioner, while applying, was called upon to enclose such a

certificate. whatever it is, within three days thereafter, i.e, on 27.6.1989, petitioner Company along with the covering letter, forwarded the

certificate. Again, the Department slept over for nearly ten months and only in April, 1990 they called for certain details. This claim by the

respondents is that after receiving the details the matter was examined by the Committee and it passed orders on 12.11.1990. The concerned

respondent took seven months time to pass the order for which no explanation is forthcoming. At this juncture, it has to be pointed out that in

matters like this, the concerned Department must act swiftly and take a decision. From the materials available on record, it is fairly clear that the

State wanted to give some relief and thereby encourage the manufacturing units for the first five years from their starting commercial production, by

a process of manufacture developed through its own research and development method. There can be no justification on the part of the

department to take their own sweet time in processing the matter. It is said that the proof of cake is in its eating. In other words, when the

department wants to confer some benefits/advantages, it must reach the concerned person at the earliest possible time.

Para 25 of the Drugs (Price Control) Order, 1987 confers powers on the Government to issue guidelines for the purpose of granting exemption.

Under para 28 of the said order, the Bulk Drug Manufacturing Units can be exempted by the Government from the provisions of para 3 of the said

order. The Ministry of Chemical and Fertilizers issued guideline 1/1989 dated 14.2.1989 wherein it is stated that the manufacturer can make an

application to the Government within 30 days from the date of commencement of commercial production of such bulk drug or within 30 days from

the date of issue of guidelines along with the information required in the annexure and such other information as may be required by the

Government and or such additional information as the Company may voluntarily give. Pursuant to this, the petitioner applied for exemption. The

Ministry of Chemical and Fertilizers also issued another guideline viz., 2/1989 on 12.9.1989, but that was relating to grant of exemption under para

28 of the said order to such Drug Manufacturing Units from the provisions of paragraphs 8,9 and 10 of the said order in respect of such

formulations having New Delivery System as is produced by that Unit for a specified period not exceeding five years reckoned from the date of

approval by the Government. While the first one is relating to the Bulk Drug Manufacturing Units, the second one is for Drug Manufacturing Units

in respect of formulations having New Delivery System. Hence both the guidelines are different. This is also evident from the fact that Guideline

No. 2 of 1989 does not say the same has been issued in super session of guideline No. 1/1989. Similarly, guideline No. 2/1989 does not read that

it has to be read along with guideline No. 1/1989. This Court is pointing out this to meet the rival contentions made by the parties. While it is the

case of the petitioner that the grant of approval on 12.11.1990 would relate back to the date of application, the contention of the respondents is

that since guideline No. 2/1989 make it clear that the period has to be calculated only from the date of approval and not retrospectively. As

pointed out earlier, the petitioner made application only pursuant to guideline No. 1/1989. In the said application though he claims that he has been

manufacturing from September, 1987, to Column 11 in the application sent by it, a requisition is made for exemption with effect from April, 1989

for a period of five years. It is not the case of the respondents that prior to 12.11.1990 and also even on the date of application viz., 11.3.1989 the

petitioner was not satisfying various conditions contemplated in guideline No. 1/1989. That being so, the order dated 12.11.1990 granting

exemption to Bulk Drug has to be reckoned from 1.4.1989 till 31.3.1992.

But at the same time, it has to be pointed out in respect of formulations having new delivery system as is produced by that unit, if any, can be for

the period from 1.10.1989 to 31.3.1992. This Court is so holding for the following reason.

When the communication was sent calling for a certificate dated 20.6.1989, normally the details required should have been asked for by the

Department then itself. There can be no justification for the department/respondents for asking the details in installments. The petitioner also sent

the certificate immediately thereafter i.e, on 29.6.1989. Maximum period of three months time can be granted for the respondents to process the

matter further which will take to 1.10.1989. This court has to take this view because the petitioner has not questioned the second guideline

prescribing any exemption will be operative only from the date of approval. Of course, we have to point out, even though petitioner has not

questioned it, this Court can certainly hold that three months is the reasonable period within which the department/respondents should have

processed it and granted approval, if eligible.

In this view of the matter this Court holds as under,

(a) The petitioner shall be entitled for exemption in respect of Bulk Drug Manufacturing for the period from 1.4.1989 to 31.3.1992.

(b) The petitioner shall be entitled to exemption from the provisions of para 8,9,10 of the said order in respect of said formulation having such new

delivery system for the period from 1.10.1989 to 31.3.1992.

The writ petition is allowed as above. Consequently, the connected WMPs are closed.