Holding

Paragraph 21, by virtue of paragraph 18, applies to all formulations as defined in the Order, including a single bulk drug treated as a medicine, making the excess‑price collection punishable under Section 7 of the Essential Commodities Act.

Summary

The respondents, a drug firm and its managing partner and pharmacist, were prosecuted for charging amounts in excess of the maximum retail price fixed under the Drugs (Price Control) Order, 1979 for Largactil and Hipnotex tablets. The trial court convicted them under Section 7 of the Essential Commodities Act, 1955 for contravention of paragraph 21 read with paragraph 18 of the Order. The Kerala High Court acquitted them, holding that the two medicines were merely bulk drugs, not "formulations", and therefore paragraph 21 did not apply. On appeal, the Supreme Court examined the definitions in the Order, held that a formulation is defined broadly to include even a single bulk drug treated as a medicine, and that paragraph 18 makes paragraph 21 applicable to formulations not listed in the Third Schedule. Consequently, the alleged excess‑price collection would constitute an offence punishable under Section 7 of the Act. However, the Court did not restore the conviction, leaving the acquittal in place and allowing the appeal in part to correct the legal construction.

Issues considered

Whether Largactil and Hipnotex fall within the definition of "formulation" under the Drugs (Price Control) Order, 1979.
Whether paragraph 21 of the Order applies to formulations not specified in the Third Schedule by virtue of paragraph 18.
Whether the excess price collection constitutes a contravention punishable under Section 7 of the Essential Commodities Act, 1955.

Legislation cited

Drugs (Price Control) Order, 1979s. para 10-14, s. para 18, s. para 2, s. para 21
Essential Commodities Act, 1955s. 7

Subjects

Drugs (Price Control) OrderEssential Commodities Actbulk drugformulationmaximum retail priceprice controlSection 7paragraph 18paragraph 21statutory interpretation

Judgment

BALAKRISHNA PILLAI, CHIEF INSPECTOR OF DRUGS
A
INTELLIGENCE SQUAD, TRIVANDRUM 1-ND ANOTHER
v.
MATHA MEDICALS AND OTHERS

JANUARY 15, 1991
[B.C. RAY AND J.S. VERMA, JJ.] B

Drugs (Price Control) Order, 1979-Paras 10-14, 18 and 21-
Collection of excess price when drug's maximum retail price fixed-
--'- Maintainability of prosecution-'Bulk drug'-'Formulation'-Inter-
pretation of.

Respondent No. lis a firm dealing in medicines and respondents 2 c
and 3 are its managing parnter and pharmacist. In contravention of the
provisions of Drugs (Price Control) Order 1979, para 21 read with para
18 they charged from a Nursing Assistant of the Medical College Hospi-
tal, Kottayam, Rs.90 in excess of the maximum retail price fixed for
-.._,./ the sale of 15 tablets of Largactil of 100 mg each and 60p in excess for D
' 100 tablets of Hipnotex of 5mg each. According to the prosecution this
act of their's being in contravention of the provisions of the Order, was
punishable under Section 7 of the Essential Commodities Act, 1955 and
accordingly prosecution was initiated against the respondents. The trial
court found the respondents guilty and convicted them and sen~enced
respondent No. 1 firm to a fme of Rs.2,000 and respondents 2 and 3 to
three months simple imprisonment. On appeal, the High Court of
Kerala acquitted them taking the view that none of the aforesaid two
m~dicines, namely Largactil and Hipnotex were 'formulations' as
defined in Section 2(t) of the Drugs (Prices Control) Order 1979 and as
such the sale of these drugs at higher rates than. the prescribed was not
punishable under paras 21 read with para 18 of the order. F

~ The appellants have thus filed this appeal after obtaining special
~ leave. The question for decision in the present case relates to the cor-
rectness of the construction made by the High Court of the provisions of
the 'Order'.
G
Partly allowing the appeal, this Court,

HELD: A bulk drug is one which may be capable of use by itself or
---< as an ingredient in any formulation. [69G]

Formulation is a medicine which may comprise even of one bulk H

65
66 SUPREME COURT REPORTS [1991] 1 S.C.R.

drug by itself or mor_e than one bulk drug. The definition of 'Formula-
A
tion' is very wide and includes even one bulk drug where that one bulk ~
drug by itself is treated as a medicine. [70B]

The provisions of para 21 which in terms are meant to control sale
prices of formulations specified in the Third Schedule as also the other
B provisions of the Order whi<,:h in terms may be of limited application
are specifically made applicable to all formulations as defmed in the
Order except only paragraphs 10 to 14 which have been expressly
excluded. It is by virtue of para 18 that the prohibition contained in
para 21 has been made applicable to formulations not specified in the
Third Schedule. [70G-H]
c The High Court misconstrued the provisions of the Drugs (Price
Control) Order 1979. The Court rejected that construction and held
that the allegations in the present case, if proved, would amount to a
contravention of para 21 r~ad with para 18 of the 'Order' which is
punishable under Section 7 of the Essential Commodities Act, 1955.
D The Court however did not interfere with the acquittal of the res-
pondents. [72B-C]

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal
No. 37 of 1991.

E From the Judgment and Order dated 7.3.1989 of the Kerala High
Court in Crl, Appeal No. 321of1986.

P.S. Poti and T.T. Kunhikannan for the Appellants,

T .S. Krishnamoorthy Iyer and N. Stidhakaran for the Respondents.
F
The Judgment of the Court was delivered by

VERMA, J. The respondents were found guilty by the trial
Court for contravention of para 21 read with para 18 of the Drugs
(Prices Control) Order, 1979 (hereinafter referred to as 'the Order)
G issued under Section 3 of the Essential Commodities Act, 1955
(hereinafter referred to as 'the Act') and accordingly. convicted under
Section 7 of the Act. Respondent No. 1 firm was sentenced.to a fin-e of )-
1Rs.2,000 while respondents 2 and 3 who were the managing partner
and pharmacist of the firm were sentenced to three months simple
Imprisonment. The High Court of Kerala at Ernakulam (hereinafter
H referred to as 'the High Court') allowed their appeal against the con-
B. PILLAI v. MATHA MEDICALS [VERMA, J.] 67

viction and sentence and acquitted all of them. Hence, this special
J leave petition against their acquittal. A

Leave granted.

The allegation on which the prosecution of the respondents was
based is that they collected Rs.90 in excess of the maximum retail price B
fixed for the sale of 15 tablets of Largactil of 100 mg each and 60p. in
excess for 100 tablets of Hipnotex of 5 mg each from one Sepastian·
Joseph, a Nursing Assistant in the Medical College Hospital, Kottayam,
on 4.~.198~_. It is alleged that recovery of the amount in excess of the
maximum retail price fixed for the sale of these medicines under the
drugs (Prices Control) Order, 1979 was a contravention of the provi-
sions contained therein which is punishable under Section 7 of the c
Essential Commodities Act, 1955'. The trial Court rejected the several
defences raised by the respondents and found them guilty of contra-
vention of para 18 read with para 21 of the Order which is an offence
l punishable under Sectfon 7 of the Es~ential Commodities Act, 1~55.
The respondents were accordingly convicted and sentenced as aforesaid. D

As earlier stated, the respondents' appeal to the High Court has
succeeded and they have all been acquitted. The High Court has taken
the view that on these allegations, contravention of para 18 of the
Order is not made out. The High Court has summarised its conclusion
as under: E

"The upshot of the above discussion is that Largactil
and Hipnotex-Chlorpromazine and nitrazepam-are only
bulk drugs and not formulation. The appellants, none of
whom is a manufacturer or distributor, cannot Qe convicted
for contravention of paragraph 18 of the Order. (The posi- F
tion is seemi!lgly different in the Order of 1987 because
paragraph 18 of the Order of 1987 contains inhibition
against sale of bulk drugs also).

In the result, I allow this appeal_ and _set aside the
conviction and sentence. Tlte 'appellants are acquitted and G
are directed to be set ·at liberty.,,..- - -

The real question for decision in the present case is the correct-
ness of the construction made by the High Court of tbe provisions of
the 'Order'. Shri P.S. Poti, learned counsel for the appellants con-
tended that the grievance in this_ appeal is really to the construction H
68 SUPREME COURT REPORTS [1991] 1 S.C.R.

made by the High Court of the provisions of the 'Order' which is
A
affecting a large number of similar matters and not to the outcome of;....
individual matter before us. Learned Counsel contended that the
appellants are not much interested in assailing the acquittal in the
present individual matter, but the correct construction of the provi-
sions of the Order is necessary for future guidance. In our opinion, it is
B necessary to examine the provisions of the 'Order.' and to indicate
their correct meaning in view of the general importance thereof.

The Order was made by the Central Government in exercise of )..__
the powers conferred by Section 3 of the Essential Commodities Act,
1955. Para 2 of the Order contains the definitions, some of which may_
be referred. Clause_ (a) of para 2 defines 'bulk drug' to mean any
c substance . . . . . . 'which is used as such, or as an ingredient in any
formulations'. 'Dealer' is defined in clause (b) to mean a person carry-
ing on the business of purchase or sale of drugs, whether as a wholesaler
or retailer and includes an agent of a dealer. 'Drug' is defined in clause --.,. ----
( d) to include 'bulk drugs and formulations'. Clause (f) defines 'formu- i
D lation' to mean a medicine processed out of, or containing 'one or
more bulk drugs or drug'. Clause (q) defines 'price list' to mean a price
list referred to in this Order. Clause (r) defines 'retail price' to mean
the retail price of a drug arrived at or fixed in accordance with the
provisions of this Order. The other clauses of para 2 contain other
definitions including the definitions of 'retailer' and 'wholesaler'. It is/-
E not necessary to refer to them in detail. Para 3 contains the power to -
fix the maximum sale price of indigenously manufactured bulk drugs
.specified in First or Second Schedule to the Order. Para 19 requires
every manufacturer or importer of a formulation to furnish to the «-
dealers, State·Drug Controllers and the Government, a price list show-
ing the price at which the formulation is sold to a retailer and every
F dealer is required to display !he price list at a conspicuous part of his ....,, ,
business premises. Part 20 requires every manufacturer, importer or ~
distributor of a formulation to display on label of the container the
maximum retail price of that formulation. Paras 18, 21, and 22, the
construction of which is in dispute, read as under:

"18. Certain provisions of this Order to apply to
formulations not included in Category I, Category II or
Category III of Third Schedule.- The provision of this 'r--
Order, other than those contained in paragraphs 10 to 14
(both inclusive), shall apply, to any formulation not speci-
fied in Category I, Category II or Category III of the Third
H Schedule."
B. PILLAI v. MATHA MEDICALS [VERMA, J.) 69

"21. Control of sale prices of formulations specified in
Third Schedule.- No retailer shall sell any formulations A
specified in any of the categories in the Third Schedule to
any person at a price exceeding the price specified in the
current price list or the price indicated on the label of the
container or pack thereof whichever is less plus the local
taxes, if any, payable. B

Explanation.- For the purposes of this paragraph,
"local taxes" include sales tax ancl octroi actually paid by
the ratailer under any law in force in a particular area."

"22. Sale of split quantities of formulations.- No dealer C
shall sell loose quantity of any formulation drawn from a
bottle pack of such formulation at a price which exceeds
the pro-rate price of the formulation plus 5 per cent
thereof.

Provided that nothing in this behalf shall apply to any D
formulation compounded at the premises of the dealer."

The view taken by the High Court is that the two formulations,
namely, Largactil and Hipnotex, the sale of which at an excess price is
alleged to be the contravention of the Order, not being formulations
specified in any of the categories in the Third ,Schedule to the Order, E

- the prohibition contained in para 21 of the Order has no application.
On this basis, the view taken is that the sale of these two formulations
in excess of the retail price fixed for their sale is not a contravention of
any provision of the Order to attract the punishment provided under
Section 7 of the Essential Commodities Act, 1955. It has also been
held by the High Court that none of these two medicines is a formula- p
tion as defined in clause (f) of para 2 of the Order but merely a bulk
drug, which fact also excludes the application of para 21 of the Order.
It appears that this position was not seriously contested even by the
learned public prosecutor in the Courts below. In our.opinion, such a
view results from a mis-reading of the material provisions of the
Order. . G

The definition of 'bulk drug' given in clause (a) of para 2 shows
that it means any substance 'which is used as such' or 'as an ingredient
in any formulations'. Thus a bulk drug is one which may be capable of
use by itself or as an ingredient in any formulation. Drug is defined in
clause ( d) of para 2 to include 'bulk drugs' and 'formulations'. Clause H
70 SUPREME COURT REJ>ORTS (1991) 1 S.C.R.

(f) then defines 'formulation' to me:,tn any medieine processed out of
A
or containing one or more bulk drugs or drug. Thus formulation is a
medicine which may comprise even of one bulk drug by itself or more
than one bulk drug. The definition of 'formulation' is thus very wide
. and includes even one bulk drug_ where that one tmlk drug by itself is
treated as a medicine. It is difficult to uphold the view that the two
B. medicines, namely, Largactil and Hipnotex, do not fafl within the
definition of 'formulation' contained in clause (f) of para 2 of the
Ord~r. One of the two difficulties pointed out by the High Court in
applying para 21 of the Order to the presen~ case is clearly out of the
way.

The only surviving question now is whether para 21 of the Order
c is rendered Inapplicable merely because none of these formulations is
specified in any of the categories in the Third Schedule to the Order.
In other words: Is the Hig~ Court correct in taking the view that
notwithstanding the fixation of the maximum retail price of these
formulations in accordance with the provisions of the Drugs (Prices
D Control) Order, 1979, there is no provision made therein to prohibit
their sale at an amount in excess of the maximum retail pri~e fixed
under the Order to attract the punishment provided in Section 7 of the
Essential Commodities Act, 1955? In.our opinion, it is not so. There is
no controversy that by an amendment made in 1987 to which we shall
refer later' the matter has been placed beyond the scope of any argu-
E ment. However, even prior to that amendment, the matter is clear by

-
the express provision contained in para 18 as it existed even then.

Para 18 clearly says that the provisions of this Order 'other than
those contained in paragraphs 10 to 14 (both inclusive)' shall apply to
any formulations not specified in Category I, Category II or Category
F III of the Third Schedule. It is plain that the provisions of the Order
except paragraphs 10 to 14 which have been expressly excluded, are
specifically made applicable to formulations which are not specified in
the Third Schedule: It is, therefore, clear that the provisions of para 21
which in terms are meant to control sale prices of formulations
specified in the Third Schedule as also the other provisions of the
G Order which in terms may be of limited application are specifically
made applicable to all formulations as defined in the Order except
only paragraphs 10 to 14 which have been expressly excluded. It is by
virtue of para 18 that the prohibition contained in para 21 has been
made applicable to formulations not specified in the Third Schedule.
This is also the logical view to take. The contrary view would lead to
H the conclusion that in spite of the price fixation made for the formula-
B. PILLAI v. MATHA MEDICALS [VERMA, J.] 71

tions not specified in the Third Schedule, there is no prohibition made
)" against its sale for an amount in excess thereof with the result that the A
price fixation would be an exercise in futility. The Drugs (Prices
Control) Order, 1987, which has replaced the Drugs (Prices Control)
Order, 1979, contains paras 18 and 21 differently worded to show
clearly that such an argument is now not even available under the 1987
Order. B
__J We are clearly of the opinion that the High Court misconstrued
the provisions of the Drugs (P~ices Control) Order, 1979, to take the
view that none of the aforesaid two medicines, namely, Largactil and

- Hipnotex are 'formulations' as defined in Section 2(f) of the Drugs
(Prices Control) Order, 1979; and that the sale of these two medicines
for an amount in excess of the maximum retail price fixed is not
punishable under para 21 read with para 18 of the Order.
c

y The only question now is of the order we should make in this
matter. Shri T.S. Krishnamurthy Iyer, learned counsel for the respon-
dents very fairly stat~d that the construction we have made of the D
several provisions of the 1979 Order including paras 18 and 21 thereof
cannot be seriously disputed. However, he contended that the respon-
dents had raised several defences none of which has been considered
by the High Court since it acquitted the respondents only on the
~-, construction it made of these provisions. He, therefore, argued that
setting aside the High Court's order should not automatically lead to E
restoration of conviction and sentence made by the trial court since

- other defences raised by the respondents remain for consideration. He
suggested that in view of the lapse. of several years from the date of the
alleged offence and the peculiar facts of this case, we may merely set
aside the High Court's order but not restore the conviction and sen-
-~ tence of the respondents. He pointed out that the customer to whom F
,;_ the medicines are alleged to have been sold at an excess price is him-
self a member of the nursing staff of a hospital and it is unreasonable
to take the view that he would pay Rs.99 for 15 tablets of Largactil
against its retail price of Rs.9 only, particularly when he had been
purchasing these drugs for a long time. We find merit in the contention!
of learned counsel for the respondents and we ar~ inclined to adopt the G
course suggested by him in the light of peculiar facts of this case. In our
-< opinion, it would be inappropriate after the lapse of several years t< ·
send back the case to the High Court for deciding the remaining
defences raised by the respondents which would further prolong con-
clusion of the trial. It is also clear that without rejecting the other
defences, it is not possible to uphokt the conviction and sentence H
72 SUPREME COURT REPORTS [1991) 1 S.C.R.

A awarded by the trial court. In such a situation, the course su"ggested by
Shri T.S. Krishnamurthy Iyer, particularly in view of the stand taken
by Shri P.S. Potion behalf of the appellants, that the appellants are
more keen to know the correct meaning of the provisions of the Order,
appears to be the proper course to adopt in the present case~
B
Consequently, we reject the High Court's construction of the
provisions of the 'Order' and hold that allegations in the present case, ·
if proved, would amount to a contravention of para 21 read with para
18 of the Drugs (Prices Control) Order, 1979, which is punishable
under Section 7 of the Essential Commodities Act, 1955. However, for
the reasons already given, we do not interfere with the acquittal of the
c respondents. The appeal is disposed of accordingly.

Y. Lal Appeal allowed partly.

-