Holding

Price fixation under the Drugs (Prices Control) Order, 1979 is a legislative activity exempt from natural‑justice requirements, while the review under paragraph 27 is a legislative review that obliges the government to disclose relevant information, and the High Court’s quashing of the notifications and interim stays was erroneous.

Summary

The Union of India appealed against a Delhi High Court judgment that quashed notifications fixing maximum prices of bulk drugs and retail prices of formulations under the Drugs (Prices Control) Order, 1979, on the ground that the government had failed to observe natural justice. The Court examined whether price fixation under the Order is a legislative activity exempt from natural‑justice requirements and whether the review mechanism in paragraph 27 constitutes a quasi‑judicial proceeding. It held that price fixation is a legislative act, not subject to the rules of natural justice, but the review under paragraph 27 is a legislative review with limited procedural safeguards, requiring the government to disclose relevant information if requested. The Court also ruled that interim stays of price‑fixation orders are contrary to public interest and that the government must dispose of pending review applications expeditiously. Consequently, the appeal was allowed, the High Court’s order set aside, and directions were issued for prompt disposal of reviews and condonation of delay in filing special‑leave petitions.

Issues considered

Whether fixation of maximum prices of bulk drugs and retail prices of formulations under the Drugs (Prices Control) Order, 1979 is a legislative activity not amenable to the principles of natural justice.
Whether the review provision in paragraph 27 of the Order is a quasi‑judicial process requiring observance of natural‑justice rules.
Whether the High Court was correct in quashing the price‑fixation notifications for lack of natural justice.
Whether courts may grant interim stays of price‑fixation orders in view of public interest.
Whether the government is obliged to disclose the basis of price fixation during a review.
Whether the delay in filing special‑leave petitions by the Union should be condoned.

Legislation cited

Constitution of Indias. Article 226, s. Article 32, s. Article 39(b)
Drugs (Prices Control) Order, 1979s. paragraph 12, s. paragraph 13, s. paragraph 27, s. paragraph 3
Essential Commodities Act, 1955s. 3(2)(c), s. 3(3)(c)

Subjects

price fixationnatural justiceessential commoditieslegislative vs quasi‑judicialreview of subordinate legislationconsumer interestinterim staydelay condonation

Judgment

UNION OF INDIA & ANR.
A
v.
CYNAMIDE INDIA LID. & ANR.
y
I
APRIL 10, 1987,

[O. CHINNAPPA REDDY AND K.N. SINGH, JJ.) B

Drugs (Prices Control) Order, 1979: Paragraphs 3, 12, 13 & 27:
Bulk Drugs-,Price fixation of-,--Whether legislative activity-Principles
of natural justice whether applicable to-Cost of production-Whether
can be determined by a subordinate legislating Body-Price ftxation-
Review-Nature of-Formulations--Fixation of retail prices-Whether C
to await the result of review application.

Constitution of India,. Artic!es 32 & 226-Essential Commo-
dities-Price fixation of-Whether matter for investigation and interfer-
ence by Court.
D
Practice. and Procedure: Essential Commodities-Price ftxatidn
of-Interim order staying implementation of notificc.tion fixing prices-
Courts not to pass orders which would be against public interest.

Constitution of India,. Article 39(b)-Material resources of the
community-Distribution of to sub-serve common good-Obligations E
of State.

Paragraph 3 of the Drugs (Prices Control) Order, 1979 made by
the Central Government in exercise of powers unW:r s. 3(2)(c) of the
Essential Commodities. Act, 1955 empowers the Government; after
making such enquiry as it deems fit, to fix the maximum price at which F
' the indigenously manufactured bulk dmg shall be sold. Clause (2) of
Paragraph 3 provides that while so fixing the price of a bulk dmg, th•
Government may take into account the average cost of production of
such bulk drug manufactured by a efficient manufacturer and anow a
reasonable return ou net worth. Paragraph 12 empowers the Govern-
ment to fix leader prices of formulations of categories I and II, while G
paragraph 13 empowers the Government to fix retail prices of formnla-
tions of category III. Paragraph 27 enables any person aggrieved by any
notification or order under the various paragraphs aforesaid to appeal
to the Government for a review:

The Central Government issued notifications under paragraph 3 · H ' ·

841

, /'
842 SUPREME COURT REPORTS [1987] 2 S.C.R.

A of the 1979 Order fixing the maximum prices at which various indi-
genously manufactured hulk drugs could he s0Id. The manufacturers 'y
first filed review applications under paragraph 27 of the Order and
thereafter writ petitions under Art. 226 of the Constitution challenging
the notifications. The High Court quashed those notifications on the
ground of failure to observe the principles of natural justice. Since
B prkes of formulations are primarily dependent on prices of bulk drugs,
the notifications fixing the retail prices of formulations issued during L
the pendency of review petitions were also quahsed. r'
·1n the appeal by the Union of India, it was contended that the
fixation of maximum price under paragraph 3 of the Order was a
C legislative activity and, therefore, not subject to any principle of
natural justice, that paragraph 27 of the Order gave a remedy to the
manufacturers to seek a review of the order f°IXing the maximum price )--
under paragraph 3, that such review did not partake the character of a
judicial or quasi-judicial proceedings, and that at the time of the bear-
ing of the review application the matter underwent thorough and de-
D tailed discussion between the parties and the Government as well as the
Bureau of Industrial Costs and Prices, and that the prices had not been
fixed in an arbitrary manner.

For the respondents, it was contended that unlike other price j.
control legislations, the Drugs (Prices Control) Order was designed to
E induce better production by providing for a fair return to the man-
ufacturers; that the provision for an enquiry proceeding the determina- •
tion of the price of a bulk drug, the prescription in paragraph 3, clause
2 that the average cost of production of the bulk drug manufactured by
an efficient manufacturer should be taken into account and that a-.f
reasonable return on net worth should be allowed, and the provision for '
F a review of the order determining the price, established that price- ~
fixation under the Order was a quasi-judicial activity obliging the
observance of the rules of natural justice; that the review, for which
provision is made by paragraph 27, was certainly of quasi-judicial
character and, therefore, it was necessary that the manufacturers
should be informed of the basis for the fixation of the price, that the
G price had hen f°IXed in an arbitrary manner and the Government was
not Willing to disclose the basis On which the prices Were f°IXed On the r
pretext that it may involve disclosure of matters of confidential nature;
that since the price of formulations were dependent .on the prices of
bulk drugs, these should not have been prescribed until the review
application was disposed of, that the undertaking given by the parties
H before the High Court while obtaining ex-parte interim order to main-
UNION v. CYNAMIDE LTD. 843

lain the status-quo on the prices of bulk drugs and formulations prevail- A
ing before the issue of notifications, and in case of dismissal of their
petitions to deposit the difrerence in the prices of the formulations in the
Court, lapsed with the disposal of the writ petition and it could no
longer be enforced; and tbat the delay in filing special leave petitions
against other manufacturers should not be condoned as the Goveru-
"''nt was well versed litigant as compared to private litigants. B

Allowing the appeal, the Court,
(4- -
· HELD: I.Price f'ixation is neither tbe function nor the forte of tbe
Court. The Court is concerned neither with the policy nor with the
rates. But it has jurisdiction to enquire into the question, in appro- C
priate proceedings, whether relevant considerations have gone in and
irrelevant considerations kept out of the determination of the price. For
example, if the legislature has decreed tbe pricing policy.and prescribed
the factors which should guide the determination of the price, the Court
will, if necessary, enquire into the question whether the policy and
factors were present to the mind of the authorities specifying the price. D
Its examination would stop there. The mechanics of price fixation are
not concern of the executive. The Court will not revaluate the consi-

-r derations even if the prices were demonstrably injurious to some
manufacturers or producers. It will, of course, examine ifthere was any
hostile discrimination. [852E-H]
E
Secretary of Agriculture v. Central Reig Refining Company, 338
604; Prag Ice & Oils Mills v. Union of India, [1978i 3 SCC 459 and
~We/com Hotel v. State of Andhra Pradesh, (1983] 4 SCC 575, referred
/ to.

2. Profiteering, by itself, is evil. Profiteering In the scarce re- F
sources of the community, much needed life-sustaining food stuffs and
life saving drugs is diabolic. It is a menace which has to be fettered and
curbed. The ESsential Commodities Act, 1955 is a legislation towards
that end, in keeping with the duty of the State enshrined in Art. 39(b) of
the Constitution towards securing that the ownership and control of the
material resources of the community are so distributed as best to sub- G
serve the common good. [851E-F]

The right of the citizen to obtain essential articles at fair prices
and duty of the State to provide them are thus transformed into the
power of the State to fix prices and obligation of the producer to charge
no more than the price fixed. [854F] H
844 SUPREME COURT REPORTS [1987] 2 S.C.R.

Shree Meenakshi Mills Ltd. v. Union of India, [1974] 1 SCC 468;
A
Hari Shankar Bag/a v. State of Madhya Pradesh, [1955] 1 SCR 380;
Union of India v. Bhanamal Gulzarimal, [1%0] 2 SCR 627; Sri Krishna
Rice Mills v. Joint Director (Food), (unreported), State of Rajasthan v.
Nathmal and Mithamal, [1954) SCR 982; Narendra Kumar v. Union of
India, [1960) 2 SCR 375, Panipat Co-operative Sugar Mills v. Union of
B India, [1973) l SCC 129; Anakapalle Co-operative Agticttltural and In-
dustrial Society Ltd. v. Union of India, [1973) 3 SCC 435 and Premier
Automobiles Ltd. v. Union of India, [1972) 2 SCR 526, referred to.

3.1 A price fixation measure does not concern itself with the
interests of an individual manufacturer or producer. It is generally in
-
relation to a particular commodity or class of commodities or trans-
c actions. It is a direction of a general character not directed against a 'r
particular situation. It is intended to operate in future. It is conceived in
the interest of the general consumer public. [854E-F)

3.2 Price fixation is more in the nature of a legislative activity
D than administrative. A legislative act is the creation and promulgation
of a general rule of conduct without reference to particular cases; an
administrative act is the making and issue of a specific direction or the
application of a general rule to a particular case in accordance with the 'f.
requirements of policy. Legislation is the process of formulating a
general rule of conduct without reference to particular cases and usu-
E ally operating in future; administration is the process of performing
particular acts, of issuing particular orders or of making decisions
which apply general rules to particular cases. [853F-H; 854A]

Secretary' of Agriculture v. Central Reig Refining Company, 338 --f.
US 604, and Saraswati Industrial Syndicate Ltd. v. Union of India, \. ·
F [1974) 2 sec 630, referred to.

3.3.1 Price fixation may occasionally assume an administrative or
quasi-judicial character when it relates to acquisition or requisition of
goods or property from individuals and it becomes necessary to fix the

G
price separately in relation to such individuals. Such situations may
arise when the owner of property or goods is compelled to sell his
property or goods to the Government or its nominee and the price to he
r
paid is directed by the legislature to be determined according to the
statutory guidelines laid down by it. In such situations the determina-
tion of price may acguire a quasi-judicial character. [854G-H; 855A]

H 3.3.2 Section 3(2)(1) of the Essential Commodities Act enables the
I

UNION v. CYNAMIDE LID. 845

Central Government to make an order requiring any person engaged in A
the production of any essential commodity to sell the whole or a specific
part of the quantity produced by him to the Government or its nominee.
Section 3(3)(C) provides for the determination of the price to be paid to
such a person. If the provisions ofs. 3(2)(c), nnder which the price of an
essential commodity may be controlled, are contrasted withs. 3(3)(C)
under which payment is to be made for a commodity required to be sold B
by an individual to the Government, the distinction between a legisla-
tive act and a non-legislative act will at once become clear. The order
made under s. 3(3)(c), which is not in respect of a single transaction,
nor dkected to a particular individual, is clearly a legislative act, while
an order made under s. 3(3)(C), which is in respect of a particular
transaction of compulsory sale from a specific individual, is a non- C
legislative act. [8608-H; 861A-B)

3.3 The order made under s. 3(2)(c) controlling the price of an
essential commodity may itself prescribe the manner in which price is to
be f"rxed but that will not make the fixation of price a non-legislative
activity, when the activity is not directed towaros a single individual or D
transaction but is of a general nature, covering all mdividuals and all
transactions. The legislative character of the activity is not shed and an
administrative or quasi-judicial character acquired merely because
guidelines prescribed by the statutory order have to he taken into
account. [8618-C]
E
3.4 Legislative action, plenary or subordinate, is not subject to
rules of natural justice. In the case of Parliamentary legislation, the
-) proposition is self evident.• In the case of subordinate legislation, it may
happen that Parliament may itself provide for a notice and fqr a hear-
"°' ing, in which case the snbstantial non-observance of the statutorily
prescribed mode of observing natural justice may have the effect of F
invalidating the subordinate legislation. But where the legislature has
not chosen to provide for any notice or hearing, no one can insist upon it
and it will not be permissible to read natural justice into such legislative
activity. [852H; 853A-C]

New India Sugar Works v. State of Uttar Pradesh, (1981) 2 SCC G
293; Laxmi Khandsari v. State of Uttar Prad,esh, (1981) 2 SCC 600;
Ramesh Chandra Kachardas Porwal v. State of Maharashtra, (1981] 2
SCC 722; Bates v. Lord Hailsha, of St. Marylebone, [1972] 1 WLR
1973; Edinburgh and Dalkeith Rv. v. Wauchope Per Lord Brougham,
(1842] 8 Cl & F 700, 720; British Railways Board v. Pickin, (1974) 1 All
ER 609, Sarkar Sasta Anaj Vikreta Sangh v. State of Madhya Pradesh, H
'

846 SUPREME COURT REPORTS [1987] 2 S.C.R.

[i981] 4 SCC 471 and Tharoo Mal v. Puranchand, [1978] 1 SCC 102,
A referred to.

3.5 Nothing in the scheme of the Drugs (Prices Control) Order,
1979 leads to the inference that price fixation nnder that Order is not a
legislative activity hot a qnasi-jndicial activity which would attract the
B observance of the principles of natural jnstice. Nor i5 there anything in I
the scheme or the provisions of that Order which otherwise contemp- ~·
lates the observance of any principle of natnral jnstice or kindred rule,
the non-observance of which would give rise to a' cause of action to a
suitor. [871G-H; 872A-B]

4.1 Occasionally the legislature directs the subordinate legislat-
e ing body to make 'such enqniry as it thinks fit' before making the ;..-
snbordinate legislation. In such a situation, while such enquiry by the
subordinate legislating body as it deems fit is a condition precedent to
the subordinate legislation, the nature and the extent of the enquiry is in
the discretion of the subordinate legislating body and the subordinate
D legislation is not open to question on the ground that the enquiry was
not as full as it might have been. The provision for such an enquiry is ·
generally an enabling provision, intended to facilitate the subordinate
legislating body to obtain relevant information from all and whatever -I
source considered necessary. It is the sort of enquiry which the legisla-
ture itself may cause to be made before legislating, an enquiry which
E will not confer any right on anyone other than the enquiring body. It is
different from an enquiry In which an opportunity is required to be
given to persons likely to he affected. The former is an enquiry leading
to a legislative activity while the latter is an enquiry which ends in an -f
administrative or quasi-jndicial decision. [853D-F]

F 4.2 In the present case, paragraph 3 of the Drugs (Prices Control)
Order, 1979 is an enabling provision. "Such an enquiry as it thinks fit"
contemplated by it is an enquiry of the former character to be made for
the purposes of fixing the maximum price at which a boil!. drug may be
sold, with a view to regulating its equitable distribution and making it
available at a fair price for the benefit of the ultimate consumer in
G consonance with Art. 39(b) of the Constitution. It is primarily from the )>---
consumer public's point of view that the Government is expected to
make its enquiry. The need of the consumer public is to be ascertained
and making the drug available to them at a fair price is its ultimate aim.
The enquiry is to be made from that angle and directed towards that
end. Information may be gathered from whatever source considered
H desirable by the Government. [872B-E]
UNION v. CYNAMIDE LTD. 847

4.3 In fixing the price of a bulk drug, the Goverumeut is expre- A
ssly required by the Order to take into account the average cost of
production of such bulk drug manufactured by 'an efficient manu-
facturer' and allow a reasonable return on 'net worth'. For this
purpose too, the Government may gather information from any source
including the manufacturers. Here again the enquiry by the Govern-
ment need not be restricted to 'an tofficient manufacturer' or some B
manufacturers; nor need it be extended to all manufacturers. What is
necessary is that the average cost of production by 'an efficient
manufacturer' must be ascertained and a reasonable return a''qwed on
'net worth'. Being a subordinate or delegated legislative activity, the
enquiry must necessarily comply with the statutory conditions, if any,
no more and no less, and no implicatious of natural justice can be read
into it unless it is a statutory condition. [866B-D] C

5 .1 The review provided by paragraph 27 of the Order, of the
order made under paragraph 3 fixing maximum price of indigenously
manufactured drugs, and under paragraphs 12 and 13 f"ixing leader and
retail prices of formulations, is akin to a post-decisional hearing which D
is sometimes afforded after the making of some administrative orders,
but not truly so. It is a curious amalgam of a hearing which occasionally
precedes a subordinate legislative activity such as the f"IXing of munici-
pal rates etc. and a post decisional 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 E
affected persons such as the manufacturers, the industry and the con-
sumer public to bring to the notice of the subordinate legislating body the
difficulties or problems experienced or likely to be experienced by them
consequent on the price fixation, '\>hereupon the Government may make
appropriate orders. More precisely it is a review of subordinate legislation
by a legislating body at the instance of an aggrieved person. [873B; 874C-D] F

5.2 The reviewing authority bas the fullest freedom and discre-
tion under paragraph 27 of the Order to prescribe its own procedure
and consider the matter brought before it so long as it does not travel
beyond the parameters prescribed by paragraph 3 in the case of a
review against an order made under that paragraph and the respective G
other paragraphs in the case of other orders. But whatever procedure is
adopted, it most be a procedure tuned to the situation. [873H; 874A-B]

Vraj/a/ Manila/ & Co. v. Union of India & Anr., [1964] 7 SCR 97;
Shivaji Nathubhaiv. Union of India & Ors., [1960] 2 SCR 775; Maneka
Gandhi v. Union of India, [1978] 2 SCR 621; Swadeshi Couon Mills v. H
848 SUPREME COURT REPORTS (1987] 2 S.C.R.

A Union of India, (1981] 2 SCR 533 and Liberty Oil Mills v. Union of ·y
India, [1984] 3 SCR 676, distingnished.

6.1 So long as the method prescribed and adopted by the snbordi-
nate legislating body in arriving at the cost of prodnction of bulk drugs
was not arbitrary and opposed to tbe principal statutory provisions, it
B could not legitimately be questioned. [878F]

6.2 It is open.to the subordinate legislating body to prescribe and
adopt its own mode of ascertaining the cost of production and the items
to be included and excluded in so doing. Such a body is under no
obligation to follow the method adopted by the Income-tax authorities
C in allowing expenses for the purpose of ascertaining income and asses-
sing it. There may be many items of business expenditure which may be
allowed by Income-tax authorities as legitimate expenses but which can
never enter the cost of production. It is open to such an authority to
adopt a rough and read but otherwise not unreasonable formula rather
than a needlessly intricate so-called scientific formula. [8780-H] .
D
It could not therefore, be said in the instant case, that the subor-
dinate legislating authority acted unreasonably in prescribing the
norms in the manner it has done.

7.1 From the legislative nature of the activity of the Government,
£ it is clear that it is under no obligation to make any disclosure of any
information received and considered by it in making the order but in
order to render effective the right to seek a review given to an a.ggrieved
person, the Government, if so requested by the aggrieved manufac-
lurer, is under an obligation to disclose any relevant information which
+
may reasonably be disclosed pertaining to 'the average cost of produc- ':i.,.
F lion of the bulk drug manufactured by an efficient manufacturer' and
'the reasonable return on net worth'. [874C-E]

7.2 In the instant case, the procedure followed by the Govern-
ment in furnishing the requisite particulars at the time of the hearing of
the review applications and discussing across the table the various items
G that had Ileen taken into account was sufficient <0mpliance "ith the )-·
demands of fair play in the case of the class of persons claiming to by
affected by the fixation of maximum price under the Drugs (Prices
Control) Order.' It cannot, therefore, be said that there was anything
unfair in the procedure adopted by the Government. [8760-EJ.

H 8. This Court cannot constitute itself into a court of appeal over
UNION v. CYNAMIDE LTD. 849

the Government in the matter of price fixation. The questions that A
obsolete quantitative usages had been takrn into consideration, proxi·
mate cost data had been ignored, and the data relating to the year
ending November 1976 had been adopted as the basis; that there were
errors in totalling, errors in the calculation of prices of utilities, errors
in the calculation of 'net worth' and many other similar errors, were B
questions to be raised before the Government in the review application
underparagraph27. [877A·C]

9.1 It is the necessary duty of the Government to proceed to fix
the retail price of a formulation as soon as the price of the parent bulk
drug is fixed. Though the price fixation of formulations is dependent on
the price of the bulk drug, it is not to await the result of a review C
application which in the end may turn out to be entirely without subst·
ance. In view of the public interest, therefore, it is necessary that the
price of formulation should be fixed close on the heels of the fixation of
bulk drug price. [879D-E; GJ
D
9.2 The ups and downs of commerce are inevitable it is not possi·
hie to devise a fool proof system to take care of every possible defect and
objection. It is certainly not a matter at which the conrt contd take a
hand. All that conrt may do is to direct the Government to dispose of
the review application expeditiously according to a time bound
programme. [879F·G]
E
10. Though the price of a bulk drug is dependent on innumerable
variables, it does not follow that. the notification fixing the maximum
price must necessarily be struck down as obsolete by the mere passage
of time. The applications for review must be dealt with expeditiously
and whenever they are not so dealt with, the aggrieved person may seek F
a mandamus from the court to direct the Government to deal with the
review application within a tmre frame-work. [880B·C]

11. Where prices of essential commodities are fixed in order to
maintain or increase their supply or for securing their equitable dis·
tribution and availability at fair prices, the court should not make any G
interim order staying the implementation of the notification fixing the
prices. Such orders are against the public interest and onght not to be
made by a court nnless it is satisfied that no public interest is going to
suffer. In matters of fixation of price, it is the interest of the consumer
public that must come first and any interim order must take care of that
interest. [880D-F] H
850 SUPREME COURT REPORTS [1987] 2 S.C.R.

A In the instant case, the order made by the High Court has the y
manufacturers on terms, bqt the consumer public has been left high and
dry. [881D]

12. Apart from the fact that an appeal is ordinarily considered to
be a continuation of the original proceeding, in the present case, further
B orders of the Supreme Court were also in contemplation and such
further orders could only be made if appeals were preferred to the !--·
Supreme Court. There was no doubt in anyone's mind that the matter
would be taken up in appeal to the Supreme Court whichever way the .~ •
writ petitions were decided. The undertakings given by the parties in. the
present cases, were thus intended to and do continue to subsist. [881E-F]
c [The Government is directed to dispose of the review applications
after giving notice of hearing to the manufacturer. The hearing to be ·
given within two months and the review applications disposed of within
two weeks after the conclusion of the hearing.]

D CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1603
of 1985 etc.

From the Judgment and Order dated 17 .12.1984 of the Delhi -..f
High Court in C.W.P. No. 820of 1981.

E G. Ramaswamy, Additional Solicitor General G. Subramanium,
C.V. SubbaRao and A. Subba Rao for the Appellants.

A.B. Diwan, S.I. Thakar, D.D. Udeshi, H.S. Merchant, Ravin- -f
der Narain, Mrs. A.K. Verma and D.N. Mishra for the Respondents. '

F The Judgment of the Court was delivered by

CHINNAPPA REDDY, J. It was just the other day that our
brothers Ranganath Misra and M.M. Dutt, JJ. had to give directions in
a case (Vincent Panikurbangara v. Union of India) where a public
spirited litigant had complained about the rinscrupulous exploitation
G of the Indian Drug and Pharmaceutical Market by multinational
Corporations by putting in circulation low-quality and even deleteri-
ous drugs. In this group of cases we are faced with a different problem
of alleged exploitation by big manufacturers of bulk drugs. ,The prob-
lem is that of high prices, bearing, it is said, little relation to the cost of
production to the manufacturers. By way of illustration, we may
H straightaway mention a glaring instance of such high-pricing which was
UNION v. CYNAMIDE LTD. [CHINNAPPA REDDY, J.) 851

brought to our notice at the very commencement of the hearing.
A
'Barlagan Ketone', a bulk drug, was not treated as an essential bulk
drug under the Drugs (Prices Control) Order, 1970 and was not in-
cluded in the schedule to that order. A manufacturer was, under the
provisions of that Order, free to continue to sell the drug at the price
reported by him to the Central Government at the time of the comm-
encement of the order, but was under an obligation not to increase the B
price without the prior approval of the Central Government. The price
which the manufacturer of Barlagan Kotone, reported to the Central
Government in 1971 was Rs.24,735.68 per Kg. After the 1979 Drugs
(Prices Control) Order came into force, the distinction between essen-
tial and non-essential bulk drugs was abolished and a maximum price
had to be fixed for Barlagan Ketone also like other bulk drugs. The
manufac~rer applied for fixation of price at Rs.8,500 per Kg. The
c
Government, however, fixed the price at Rs. l,810 per Kg. For the
moment, ignoring the price fixed by the Government, we see that the
price of Rs.24,735 per Kg. at which the manufacturer was previously
selling the drug and at which he continues to market the drug to this
day because of the quashing of the order fixing the price by the High D
Court, is so unconsciously high even compared with the price claimed
by himself that it appears to justify the charge that some manufactur-
ers do indulge in 'profiteering'.

Profiteering, by itself, is evil. Profiteering in the scarce resources
of the community, much needed life-sustaining food-stuffs and life- E
saving drugs is diabolic. It is a menance which had to be fettered and
curbed. One of the principal objectives of the Essential Commodities
Act, 1955 is precisely that. It must be remembered that Art. 39(b)
enjoins a duty on the State towards securing 'that the ownership and
control of the material resources of the community are so distributed
as best to subserve the common good'. The Essential Commodities F
Act is a legislation towards that end. Section 3(1) of the Essential
Commodities Act enables the Central Government, if it is of opinion
'that it is necessary or expedient so to do for maintaining or increasing
supplies of any essential commodity or for securing their equitable
distribution and availability at fair price', to 'provide for regulating or
prohibiting by order, the production, supply and distribution thereof G
and trade and commerce therein'. In particular, s. 3(2)(c) enables the
Central Government, to make an order providing for controlling the
price at which any essential commodity may be bought or sold. It is in
pursuance of the powers granted to the Central Government by the
Essential Commodities Act that first the Drugs (Prices Control) Or-
der, 1970 and later the Drugs (Prices Control) Order, 1979 were made. H
852 SUPREME COURT REPORTS [1987] 2 S.C.R.

Armed with authority under the Drugs (Prices Control) Order, 1979
A the Central Government issued notifications fixing the maximum
prices at which various indigenously manufactured bulk drugs may be
sold by the manufacturers. These notifications were questioned on
several grounds by the manufacturers and they have been quashed by
the Delhi High Court on the ground of failure to observe the principles
B of natural justice. Since prices of 'formulations' are primarily depen-
dent on prices of 'buli drugs', the notifications fixing the retail prices of
formulations were also quahsed. The manufacturers had also filed
review petitions before the Government under paragraph 27 of the
1979 Order. The review petitions could not survive after the notifica-
tions sought to be reviewed had themselves been quashed. Neverthe-
less the High Court gave detailed directions regarding the manner of
c disposal of the review petitions by the High Court. The Union of India
has preferred these appeals by Special leave of this Court against the
judgment of the High Court. The case for the Union of India was
presented to us ably by Shri G. Ramaswami, the learned Additional
Solicitor General and the manufacturers were represented equally
D ably by Shri Anil Diwan.

Before we turn to the terms of the Drugs (Prices Control) Order,
1979 we would like to make certain general observations and explain
the legal position in regard to them.

E We start with the observation, 'Price-fixation is neither the func-
tion nor the forte of the Court'. We concern ourselves neither with the
policy nor with the rates. But we do not totally deny ourselves the
jurisdiction to enquire into the question, in appropriate proceedings,
·whether relevant considerations have gone in and irrelevant considera-
tions kept out of the determination of the price. For example, if the
F Legislature has. decreed the pricing policy and prescribed the factors
which should guide the determination of the price, we will, if neces-
sary, enquire into the question whether the policy and the factors are
present to the mind of the authorities specifying the pric''· But our
examination will stop there. We will go no further. We will not deluge
ourselves with more facts and figures. The assembling of the raw mate-
G rials and the mechanics of price fixation are the concern of the execu-
tive and we leave it to them. And, we will not revaluate the consi-
derations even if the prices are demonstrably injurious to some manu-
facturers or producers. 'J:he Court will, of course, examine if there is
any hostile discrimination. That is a different 'cup of tea' altogether.

H The second observation we wish to make is, legislative action,
LINION v. CYNAMIDE LTD. [CHlNNAPPA REDDY. J.J 853

plenary or subordinate, is not subject to rules of natural justice. In the
A
case of Parliamentary legislation, the proposition is self-evident. In the
case of subordinate legislation, it may happen that Parliament may
itself provide for a notice and for a hearing-there are several instances
of the legislature requiring the subordinate legislating authority to give
public notice and a public hearing before say, for example, levying a
municipal rate-,in which case the substantial non-observance of the B
statutorily prescribed mode of observing natural justice may have the
effect of invalidating the subordinate legislation. The right here given
to rate payers or others is in the nature of a concession which is not to
detract from the character of the activity as legislative and not quasi-
judicial. But, where the legislature has not chosen to provide for any
notice or hearing, no one can insist upon it and it will not be permissi-
ble to read natural justice into such legislative activity.
c

Occasionally, the legislature directs the subordinate legislating
body to make 'such enquiry as it thinks fit' before making the subordi-
nate legislation. In such a situation, while such enquiry by the subordi-
nate legislating body as it deems fit is a condition precedent to the D
subordinate legislation, the nature and the extent of the enquiry is in
the discretion of the subordinate legislating body and the subordinate
legislation is not open to question on the ground that the enquiry was
not as full as it might have been. The provision for 'such enquiry as it
't·· thinks fit' is generally an enabling pwvision, intended to facilitate the
subordinate legislating body to obtain relevant information from all E
and whatever source and not intended to vest any right in any one
other than the subordinate-legislating body. It is the sort of enquiry
which the legislature itself may cause to be made before legislating, an
-+- enquiry which will not confer any right on anyone.

The third observation we wish to make is, price fixation is more F
in the nature of a legislative activity than any other. It is true that, with
the proliferation of delegated legislation, there is a tendency for the
line between legislation and administration to vanish into an illusion.
Administrative, quasi-judicial decisions tend to merge in legislative
activity and, conversely, legislative activity tends to fade into and pre-
sent an appearance of an administrative or quasi-jl!dicial activity. Any G
attempt to draw a distinct line between legislative and administrative
functions, it has been said, is 'difficult in theory and impossible in
practice'. Though difficult, it is necessary that the line must sometimes
be drawn as different legal rights and consequences may ensue. The
distinction between the two has usually been expressed as 'one bet-
ween the general and the particular'. 'A legislative act is the creation H
854 SUPREME COURT REPORTS [1987] 2 S.C.R.

and promulgation of a general rule of conduct without reference to
A
particular cases; an administrative act is the making and issue of a
specific direction or the application of a general rule to a particular
case in accordance with the requirements of policy'. 'Legislation is the
process of formulating a general rule of conduct without reference to
particular cases and usually operating in future; administration is the
B process of performing particular acts, of issuing particular orders or of
making decisions which apply general rules to particular cases.' It has
also been said "Rule making is normally directed toward the formula-
tion of requirements having a general application to all members of a
broadly identifiable class" while, "an adjudication, on the other hand,
applies to specific individuals or situations". But, this is only a bread
C distinction, not necessarily always true. Administration and adminis-
trative adjudication may also be of general application and there may
be legislation of particular application only. That is not ruled out.
Again, adjudication determines past and present facts and declares
rights and liabilities while legislation indicates the future course of
action. Adjudication is determinative of the past and the present whil~
D legislation is indicative of the future. The object of the rule, the reach
of its application, the rights and obligations arising out of it, its
intended effect on past, present and future events, its form, the
manner of its promulgation qre some factors which may help in draw-
ing the line between legislative and non-legislative acts. A price fixa-
tion measure does not concern itself with the interests of an individual
E manufacturer or producer. It is generally in relation to a particular
commodity or class of commodities or transactions. It is a direction of
a general character, not directed against a particular situation. It is
intended to operate in the future. It is conceived in the interests of the
general consumer public. The right of the citizen to obtain essential
articles at fair prices and the duty of the State to so provide them are
F transformed into the power of the State to fix prices and the obligation
of the producer to charge n(\ more than the price fixed. Viewed from
whatever angle, the angle of general application the prospectivity of its
effect, the public interest served, and the rights and obligations flow-
ing therefrom, there can be no question that price fixation is ordinarily
a legislative activity. Price-fixation may occassionally assume an
G administrative or quasi-judicial character when it relates to acquisition
or requisition of goods or property from individuals and it becomes
necessary to fix the price separately in relation to such individuals.
Such situations may arise when the owner of property or goods is
compelled to sell his property or goods to the Government or its
nominee and the price to be paid is directed by the legislature to be
H determined according to the statutory guidelines laid down by it. In
UNION v. CYNAMIDE LTD. [CHINNAPPA REDDY, J.] 855

such situations the determination of price may acquire a quasi-judicial
A
character. Otherwise, price fixation is generally a legislative activity.
We also wish to clear a misapprehension which appears to prevail in
certain circles that price-fixation affects the manufacturer or producer
primarily and therefore fairness requires that he be given an apportu-
nity and that fair opportunity to the manufacturer or producer must be
read into the procedure for price-fixation. We do not agree with the tl
basic premise that price fixation primarily affects manufacturers and
producers. Those who are most vitally affected are the consumet public.
It is for their protection that price-fixation is resorted to and any
.._ · increase in price affects them as seriously as any decrease does a
manufacturer, if not more.

The three observations made by us are well-settled and well-
c
--1., founded on authority. The cases to which we shall now refer, will
perhaps elucidate what we have tried, unfelicitously, to express.

In Shree Meenakshi Mills Ltd. v. Union of India, [1974] I SCC
468 a notification fixing the ex-factory price of certain counts of cotton D
yam was questioned on the ground that the price had been arbitrarily
fixed. After referring to Hari Shanker Bag/a v. State of Madhya
Pradesh, [1955] 1 SCR 380; Union of India v. Bhanamal Gulzarimal,
\- [1960] 2 SCR 627; Sri Krishna Rice Mills v. Joint Director {Food),
(unreported); State of Rajasthan v. Nathmal and Mithamal, [1954]
SCR 982; Narendra Kumar v. Union of India, [1960; 2 SCR 375; E
Panipat Co-operative Sugar Mills v. Union of India, [1973] I ~CC 129;
Anakapalle Co-operative Agricultural & Industrial Society Ltd. v.
. Union of India, [1973] 3 SCC 435 and Premier Automobiles Ltd. v..
..._ Union of India, [1972] 2 SCR 526 a constitution bench of the court
observed that the dominant object and the purpose of the legislation
,1. was the equitable distribution and availability of commodities at fair F
price and if profit and the producer's return were to be kept in the
forefront, it would result in losing sight of the object and the purpose
of the legislation. If the prices of yarn or cloth were fixed in such a way
to enable the manufacturer or producer recover his cost of production
and secure a reasonable margin of profit, no aspect of infringement of
I any fundamental right could be said to arise. It was to be remembered G
\ that the mere fact that some of those were engaged in the industry,
trade or commerce alleged' that they were incurring loss would not
render the law stipulating the price unreasonable'. It was observed,

"The control of prices may have effect either on maintain-
ing oi increasing supply of commodity or securing equit- H
856 SUPREME COURT REPORTS [1987] 2 S.C.R.

able distribution and availability at fair prices. The control-
A
led price has to retain this equilibrium in the supply and
demand of the commodity. The cost of production, a
reasonable return to the producer of the commodity are to
be taken into account. The producer must have an incen-
tive to produce. The fair price must be fair not only from
B the point of view of the consumer but also from the point of
view of the producer. In fixing the prices, a price line has to
be held in order to give preference or pre-dominant consid-
eration to the interest of the consumer or the general public
over that of the producers in respect of essential commo- · -~\
<lites. The aspect of ensuring availability of the essential
commodities to the consumer equitably and at fair price is
c the most important consideration.

The producer should not be driven out of his produc-
ing business. He may have to bear loss in the same way as
he does when he suffers losses on account of economic
D forces operating in the business. If an essential commodity
is in short supply or there is hoarding, concerning or there
is unusual demand, there is abnormal increase in price. If
price increases, it becomes injurious to the consumer.
There is no justification that the producer should be given -J
the benefit of price increase attributable to hoarding or
E cornering or artificial short supply. In such a case, if an
"escalation" in price is contemplated at intervals, the
object of controlled price may be stultified. The controlled
price will enable both the consumer and the producer to
tide over difficulties. therefore, any restriction in excess off
what would be necessary in the interest of general public or \
F to remedy the evil has to be very carefully considered so -"f·
that the producer docs not perish and the consumer is not
.-ippled."

the cases of Panipat Sugar Mills and Anakapalle Co-operative
Agricultural Society were distinguished on the ground that they were
G governed by- sub-section (JC) of sec. 3 of the Essential Commodities
Act and therefore, had no relevance to the case before the Constitu- r
lion Bench. The "case of Premier Automobiles was distinguished on the
ground that the decision was rendered by invitation and on the agree-
ment of the parties irrespective of technical and legal questions. The
Court quoted with approval a passage from Secretary of Agriculture v.
H Central Reig Refining Company, 330 US 604, stating,
UNION v. CYNAMfDE LTD. [CHJNNAPPA REDDY, J.J 857

"Suffice it to say that since Congress fixed the quotas on a
A
historical basis it is not for this Court to reweigh the rele-
vant factors and, per chance, sub~titute its notion of ex-
pediency and fairness for that of Congress. This is so even
though the quota thus fixed may demonstrably be dis-
advantageous to certain areas or persons. This Court is not
a tribunal for relief .from the crudities and inequities of B
complicated experimental economic legislation".

In Saraswati Industrial Syndicate Ltd. v. Union of India, [1974] 2 SCC
~ - 630; the Court observed,

"Price-fixation is more in the nature of a legislative
measure even though it may be based upon objective
c
criteria found in a report or.other material. It could not,
therefore, give rise to a complaint that a rule of natural
justice has not been followed in fixing the price. Neverthe-
less, the criterion adopted must be reasonable. Reason-
ableness, for purposes of judging whether there was an D
"excess of power" or an "arbitrary" exercise of it, is really
!)le demonstration of a reasonable nexus between the mat-
ters which are taken into account in exercising a power and
the purposes of exercise of that power."

It was also reiterated that the decision in Shree Meenakshi Mills' case E
was based on a special agreement between the.parties and therefore,
had no relevance to the question befor.e them.

In Prag Ice & Oil Mi/is v. Union of India, [ 1978) 3 SCC 459 a
Constitution Bench of seven judges of this court had to consider the
validity of the Mustard Oil (Price Control) Order, 1977, an Order F
made in exercise of the powers conferred upon Central Government
by the Essential Commodities Act. Chandrachud, J. speaking for the
court approved the observation of Beg, CJ. in Sataswati Industrial
Syndicate that it was enough compliance with the Constitutional man-
date if the basis adopted for price fixation was not shown to be so
patently unreasonable as to be in excess of the power to fix the price. G
~I He observed

"In the ultimate analysis the mechanics of price fixation has
necessarily to be left to the judgment of the Executive and
unless it is patent that there is hostiled discrimination
against a class of operators, the processual basis of price H
858 SUPREME COURT REPORTS [1987] 2 S.C.R.

fixation has to be accepted in the generality of cases as
A valid." y
Referring to Shri Meenakshi Mills, the learned CJ. reaffirmed the
approval accorded to the statement in Secretary of Agriculture v. Cen-
tral Reig Refining Company (supra) that Courts of Law could not be
B converted into tribunals for relief from the crudities and inequities of.
complicated experimental economic legislation. Panipat Sugar and
Anakappalle Society were again referred to and it was pointed out that
those cases turned on the language of s. 3(3C) of the Essential Com-
modities Act. Premier Automobiles was considered and it was affir-
med that the judgment in that case could not be treated as precedent
~ -
and could not afford any appreciable assistance in the decision of price
C fixation cases as it proceeded partly on agreement between the parties
and partly on concessions made at tlie bar. Beg, CJ. who delivered a
separate opinion for himself and for Desai, J. agreed that the judg-
ment in Premier Automobiles was not to provide a precedent in price
fixation case. He also reaffirmed the proposition that price fixation
D was in the nature of a legislative measure and could not give rise to a
complaint that natural justice was not observed. He indicated the indi-
cia which led him to the conclusion that price.fixation was a legislative
measure. He observed:

"We think that unless, by the terms of a particular statute,
E or order, price fixation is made a quasi-judicial function for
specified purposes or cases, it is really legislative in charac-
ter in the type of control order which is now before us
because it satisfies the tests of legislation. A legislative
measure does not cbncern itself with the facts of an indi-
vidual case. It is meant to lay down a general rule appli-
F cable to all persons or objects or transactions of a particular
kind or class. In the case before us, the Control Order
applies to sales of mustard oil anywhere in India by any
dealer. Its validity does not depend on the observance of
any procedure to be complied with or particular types of
evidence to be taken on any specified matters as conditions
G precedent to its validity. The test of validity is constituted
by the nexus shown between the order passed and the pur-
poses for which it can be passed, or in other words by
reasonableness judged by possible or probable conse-
quences."

H In New India Sugar Works v. State of Uttar Pradesh, [1981] 2 SCC 293
UNION v. CYNAMIDE LTD. [CHINNAPPA REDDY. J.] 859

there was an indication though it was not expressly so stated that the A
{ question of observing natural justice did not arise in cases of price
fixation. In Laxmi Khantlsari v. State of Uttar Pradesh, [1981] 2 SCC
600 it was held that the Sugar Cane Control Order, 1966 was a legisla-
live measure and therefore, rules of natural justice were not attracted.
In Rameshchandra Kachardas Porwal v. State of Maharashtra, [ 1981] 2
sec 722 it was observed that legislative activity did not invite natural B

~- justice and that making of a declaration that a certain place shall be a
principal market yard for a market area under the relevant Agricul-
tural Produce Markets Acts was an act legislative in character. The
~
~-
observation of Magarry, J. in Batesv. Lord Hailsha, of St. Marylebone
[1972] 1 WLR 1973 that the rules of natural justice do not run in the
sphere of legislation, primary or delegated, was cited with approval
c
and two well known text books writers Paul Kackson and Wades
-< H.W.R. were also quoted. The former had said, "There is no doubt
that a minister, or any other body, in making legislation, for example,
by statutory instrument or by law, is not subject to the rules of natural
justice-Bates v. Lord Hai/sham of St. Marylebone (supra}-any more
than is Parliament itself; Edinburgh and Dalkeith Rv. v. Wauchope per D
Lord Brougham, [1842] 8 CL·& F 700, 720; British Railways Board v.
Pickin, [1974] 1 All ER 609. The latter had said, "There is no right to
be heard before the making of legislation, whether primary or
-~ delegated, unless it is provided by statutes." In Sarkari Sasta Anaj
Vikreta Sangh v. State of Madhya Pradesh, [1981] 4 SCC 471; it was

- pointed out that the amendment of the Madhya Pradesh Food Stuffs
Distribution Control Order was a legislative function and there was;
therefore, no question of affording an opportunity to those who were to
E

be affected by it.
~
In We/com Hotel v. State of Andhra Pradesh, [1983] 4 SCC 575
~ the observations of Chandrachud, CJ. in Prag Ice and Oil Mills were F
quoted with approval in connection with the fixation of prices of food
stuffs served in restaurants.

In Tharoe Mal v. Puranchand, [1978] 1 SCC 102 one of the
questions was regarding the nature of the hearing to be given before
imposing municipal taxes under the Uttar Pradesh Municipalities Act, G
1916. It was held,

" ........ the procedure for the imposition of the tax is
legislative and not quasi-judicial . . . . . . The right to ..
object, however, seems to be given at the stage of pro-
posals of the tax only as a concession to requirements of H
860 SUPREME COURT REPORTS [1987] 2 S.C.R.

A fairness even thou1;h the procedure is legislative and not
quasi-judicial." '\

We mentioned that the Panipat and the Anakapalle cases were
distinguished in Shrce Meenakshi and Prag Ice. Panipat and
Anakapalle were both cases where the question was regarding the
B price payable to a person who was required to sell to the Government-
a certain percentage of the quantity of sugar produced in his mill. The f-·
Order requiring him to sell the sugar to the Government was made
under s. 3(2)(f) of the Essential Commodities Act under which the . -44
Central Government was enabled to make an order requiring any '
person engaged in the production of any essential commodity to sell
C the whole or specified part of the quantity produced by him to the
Government or its nominee. It will straight-away be seen that an order
under s. 3(2)(f) if a specific order directed to a particular individual for ~·
the purpose of enabling the Central Government to purchase a certain
quantity of the commodity from the person holding it. It is an order for
a compulsory sale. When such a compulsory sale is required to be
D made under s. 3(2)(f}, the question naturally arises what is the price to
be paid for the commodity purchased? Section 3(3C) provides for the
ascertainment of the price. It provides that in calculating the amount
to be paid for the commodity required to be sold regard is to be had
to-(a) the minimum price, if any, fixed for sugarcane by the Central -f
Government under this section; (b) the manufacturing cost of sugar;
E (c) the duty or tax, if any, paid or payable thereon; and (d) the secur-
ing of a reasonable return on the capital employed in the business of
manufacturing sugar. It is further prescribed that different prices may
-
be determined, from time to time, for different areas or for different L
factories or for different kinds of sugar. It is to be noticed here that the \
payment to be made under s. 3(3C) is not necessarily the ·same as the )...
F controlled price which may be fixed under s. 3(2)(c) of the Act. Sec-
tion 3(2)(c) of the Act, we have already seen. enables the Central
Government to make an order controlling the price at which any es-
sential commodity may be bought or sold, if the Central Government
is of opinion that it is necessary or expedient so to do for maintaining
or increasing supplies of any essential commodity or in securing their
G equitable distribution and availability at fair prices. Section 3(3C) pro-
vides for the determination of the price to be paid to a person who has r·
been directed by the Central Government by an Order made under s. "
3(2)(c) to sell a certain quantity of an essential commodity to the
Government or its nominee. While s. 3(2)( c) contemplates an Order of
a general nature, s. 3(3C) contemplates a specific transaction. If the
H provisions of s. 3(2)(c) under which the price of an essential commo-
UNION'· CYNAMIDE LTD. (CHINNAPPA REDDY, J.[ 861

dity may be controlled are contrasted with s. 3(3C) under which pay-
A
ment is to be made for a commodity require to be sold by an individual
to the Government, the distinction between a legislative act and a
non-legislative act will at once become clear. The Order made under
s. 3(2c), which is not in respect of a single transaction, nor directed to
particular individual is clearly a legislative act, while an Order made
under s: 3(3C) which is in respect of a particular transaction of com- B
pulsory sale from a specific individual is a non-legislative act. The
Order made under s. 3(2)(e) controlling the price of an essential com-
modity may itself prescribe the manner in which price is to be fixed but
that will not make the fixation of price a non-legislative activity, when
the activity is not directed towards a single individual or transaction
but is of a general nature, covering all individuals and all transactions.
The legislative character of the activity is not shed and an administra-
c
tive or quasi-judicial character acquired merely because guidelines
prescribed by the statutory order have to be taken into account.

We may refer at this juncture to some illuminating passages from
Schwrtz's book on 'Administrative Law'. He said: D

"If a particular function is termed "legislative" or "rule-
making" rather than "judicial" or "adjudication," it may
have substantial effects upon the parties concerned. If the
function is treated as legislative in nature, there is no right
to notice and hearing, unless a statute expressly requires E
them. If a hearing is held in accordance with a statutory
requirement, it normally need not be a formal one, gover-
ned by the requirements discussed in Chapters 6 and 7. The
~. characterization of an adn1inistrative act as legislative

J instead of judicial is thus of great significance."

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
F

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

"As a federal court has recently pointed out, there is no
"bright line" between rule-making and adjudication. The
most famous pre-APA attempt to explain the difference G
between legislative and judicial functions was made by
Justice Holmes in Prentis v. Atlantic Coast Line Co. "A
judicial inquiry," said he, "investigates, declares and
enforces liabilities as they stand on present or past facts and
under laws supposed already to exist. That is its purpose
and end. Legislation on the other hand looks to the future H
862 SUPREME COURT REPO°R.TS (1987] 2 S.C.R.

and changes existing conditions by making a new rule to be
A applied therafter to all or some part of those subject to its y
power.·: The key factor in the Holmes analysis is time: a
rule prescribes future patterns of conduct; a decision
determines 'liabilities upon the basis of present or past
facts."
B
"The element of applicability has been emphasized. by
others as the key in differentiating legislative from judicial ~-
functions. Accoding to Chief Justice Burger, "Rulemaking
is normally directed toward the formulation of require- · ..M-\ ~

ments having a general application to all members of a
broadly identifiable class. '.I An adjudication, on the other
c hand, applies to specific individuals or situations. Rule-
making affects the rights of individuals in the abstract and
must be applied in a further proceeding before the legal
~
position of any particular individual will be definitely affec
ted; adjudication operates conce~etly upon individuals in
D their individual capacity."

We may now turn our auention to the two Drugs (Prices
Control) Order of 1970 and 1979, both of which were made by the
Central Government in exercise of its powers under s. 3 of the Essen- -;.
ti al Commodities Act.
E
The Drugs (Prices Control) Order, 1970 defined 'Bulk Drugs' as
follows:
-
"Bulk drugs" means "any unprecessed phamaceutical,
chemical, biological and plant product or medicinal gas
+
F conforming to pharmacopoeia! or other standards accepted ,x.:
which is used as such or after being processed into formula-
lions and includes an essential bulk drug."

Bulk drugs were divided into essential bulk drugs which were included
in the schedule and bulk drugs which were not so included. In the case
G of essential bulk drugs, paragraph 4 of the order enabled the Central
Government to fix the maximum price at which such essentia1 bulk
drugs should be sold. In the case of bulk drugs, which were not in-
cluded in the schedule, a manufacturer was entitled to continue to
market the product at the same price at which he was marketing the
products at the time of the commencement of the order. He was re-
H quired to report this price to the Central Government within two
UNION v. CYNAMIDE LTD. (CHINNAPPA REDDY, J.l 863

weeks of the commencement of the order and was further prohibited
A
'i from increasing the price without obtaining the approval of the Central
·\ Government.

A Committee ou Drugs and Pharmaceutical Industry, popularly
known as the Hathi Committee was appointed by the Government of
India to enquire into the various· facet' of the Drug Industry in India. B

.~·\
One of the terms of reference was 'to examine the measures taken so
far to reduce prices of drugs for the consumer, and to recommend such

- .~
further measures as may be necessary to rationalise the prices of basic
drugs and formulations.' The Hathi Committee noticed that 'in a
country like India where general poverty and the wide disparities in
levels of income between different sections existed' it was particularly
c
important to emphasise 'the social utility of the industry and the urgent
~ need for extending as rapidly as possible certain minimum facilities in
terms of preventive and curative medicines to the large mass of people
both urban and rural'. It was said,

"The concern about drug prices, therefore, really arises D
from the fact that many of them are essential to the health
and welfare of the community; and that there is no justifi~
cation for the drug industry charging prices and having a
\- production pattern which is based not upon the needs of
the community but on aggressive marketing tactices and

- created demand."

The Government of India accepted the report of the Hathi Committee
and announced in Parliament the 'Statement on Drug Policy' pursuant
E

-~ to which the Drugs (Prices Control) Order, 1970 was repealed and the

J Drugs (Prices Control) Order, 1979 was made. Paragraph 44 of the
Statement on Drug Policy in 1978 dealt with 'pricing policy' and it may F
be usefully extracted here. It was as follows:-

"The Hathi Commitee had recommended that a return
post tax between 12 to 14% on equity that is paid up capital
plus reserves, may be adopted as the basis for price fixa-
tion, depending on the importance and complexity of the G
--1 bulk drug. In the case of formulations, the Hathi Commit-
tee felt that the principle of selectivity could be introduced
in terms of (a) the size'of the units, (b) selection of items;
and (c) controlling the prices only of market leaders, in
particular, of products for which price control is contemp-
lated. The Hathi Committee considered that units (other H
864 SUPREME COURT REPORTS [1987] 2 S.C.R.

A than MRTP units) having only turnover of less than Rs. I
crore may be exempted from price control. Alternatively, 'y '
all formulations (other than those marketed under generic
names) which have an annual sale in the country in excess
of Rs.15 lakhs (inclusive of excise duty) may be subjected
to price control, irrespective of whether or not the total
B annual turnover of the unit is in excess of Rs. I crore. The
ceiling price will be determined taking into account the
production costs and a reasonable return for the units
which are the market leaders. Yet another variant of a
selectivity, according to the Hathi Committee, would be to
identify product groups which individually are important
c and which collectively constitute the bulk of the output of
the industry. In respect of each item of this list, it would be
possible to identify the leading producers who account for
about 60% of the sales between them. On the basis of cost
analysis in respect of those units, maximum prices may be
prescribed and all other units may be free to fix their prices
D within this ceiling. On balance, the Hathi Committee was
of the view that this particular variant selectivity may be
administratively simpler."

The Drugs (Prices Control) Order, 1979 was' made pursuant to this
Statement of Policy. Paragraph 2(a) of the Drugs,(Prices Control)
E Order, 1979 defines 'bulk drug' to mean "any substance including
pharmaceutical, chemical, biological or plant product or medicinal gas
conforming to pharmacological or other st&ndards accepted under the
Drugs and Cosmetics Act, 1940, which is used as such or as in ingre-
-
dient in any formulations." "Formulation" is defined as follows:-

F "Formulation means a medicine processed out of, or con-
taining one or more bulk drugs or drugs, with or without
the use of any pharmaceutical aids for internal or external
use for, or in the diagnosis, treatment, mitigation or pre-
vention of disease in human beings or animals, but shall not
include-
G
(i) any bona fide Ayurvedic (including Sidha) or Unani
(Tibb) Systems of medicine;
'-
(ii) any medicine included in the Homoeopathic system of
medicine;
H
•
UNION v. CYNAMIDE LTD. [CH!NNAPPA REDDY,.J.] 865

(iii) any substance to which the provisions of the Drugs A
and Cosmetics Act, 1940 (XXIII of 1940), do not
apply"

The expressions "free reserve", "leader price", "net-worth", "now
bulk drug", "pooled price," "pre-tax return", "'retention price" are
B
defined in the following manner:

" "Free reserve" means a reserve created by appropriation

- of profits, but does not include reserves provided for con-
tingent liability, disputed claims, goodwill, revaluation,
and other similar reserves".
c
" 'leader price' means a price fixed by the Government for
formulations specified in Category I, Category II or Cate-
gory III of the Third Schedule in accordance with the provi-
sions of paras. 10 and II, keeping in view the cost of or
efficiency, or both, of major manufacturers of such for-
D
mulations."

" 'net-worth' means the share capital of a company plus free
reserve, if any."

" 'new bulk drug' means a bulk drug manufactured within
E
the country, for the first time after the commencement of
this Order."

" 'Pooled price' in relation to a bulk drug, means the price
~·

j
fixed under para 7."
F
'
"'pre-tax return' means profits before payment of income-
tax and sur-tax and includes such other expenses as do not
form part of the cost of formulations."

" 'retention price' in relation to a bulk drug means tbe price
fixed under paras 4 and 7 for individual manufacturers, or
G
importers, or distributors, or such bulk drugs."

The distinction between an essential bulk drug included in the
schedule and a bulk drug not so included in the schedule, which was
made in 1970 Drugs (Prices Control) Order was abandoned in the 1979
Order. Bulk drugs were. however, broadly divided into indigenously H
•
866 SUPREME COURT REPORTS [1987] 2 S.C.R.

A manufactured bulk drugs, imported bulk drugs and bulk dru1;s which
were both manufactured indigenously as also imported. Y
Paragraph 3 of tbe 1979 Order enables the Government, with a
view to regulating the equitable distribution of any indigenously
manufactured bulk drugspecified in the first or the second schedule
B
and making it available at a fair price and after making such enquiry as
it deems fit, to fix from time to time by notification in the official

-
gazette, the maximum price at which the bulk drug shall be sold.
Clause (2) of Paragraph 3 provides that while so fixing the price of a
bulk drug, the Government may take into account the average cost of
production of such bulk drug manufactured by an efficient manu-
C facturer and allow a reasonable return on net worth. By way of an
explanation efficient manufacturer is defined to mean "a manufac-
turer--(i) Whose production of such bulk drug 'in relation to the total
production of such bulk drug in the country is large, or (ii) who
employs efficient technology in the production of such bulk drug." We
D have already noticed that 'net worth' is defined to mean 'the share
capital of a company plus free reserve, if any'. "Free reserve" itself is
separately defined. It is then prescribed by clause (3)-
-·.
"No person shall sell a bulk drug at a price exceeding the
price notified under sub-paragraph 1, plus local taxes, if --1
any payable: provided that until the price of bulk drug is so '
E
notified, the price of such bulk drug shall be the price
which prevailed immediately before the commencement of
this order and the manufacture of such bulk drug at a price
exceeding the price which prevailed as aforesaid."
I

F This means that until the maximum sale price of an indigenously >-.c
manufactured bulk drug is fixed under paragraph 3 of the 1979 Order,
the price fixed under paragraph 4 of the 1970 order or the price permit-
ted under paragraph 5 of the 1970 order was to be maximum sale price.
Paragraph 3(4)(a) requires a manufacturer commencing production of
the bulk drug specified in the First or Second Schedule, the price of
G which has already been notified by the Government, not to sell the
bulk drug at a price exceeding the notified price. Paragraph 3(4)(b) ~·
provides that where the price of a bulk drug has not been notified by
the Government, the manufacturer shall, within 14 days of the comm-
encement of the the production of such bulk drug, make an application
to the Government in Form 1 and intimate the Government the price
H at which he intends to sell the bulk drug and the Government may,
UNION v. CYNAMIDE LTD. [CHINNAPPA REDDY, J.J 867

after making such an enquiry as it thinks fit, by order, fix a provi- A
sional price at which such bulk drug shall be sold.

Paragraph 4 of the 1979 order provides that notwithstanding any-
thing contained in paragraph 3, the Government may, if it considers
necessary or expedient so to do for increasing the production of an B
indigenously manufactured bulk drug specified in the first or second
schedule, by order, fix-

"(a) a retention price of such bulk drug,

(b) a common sale price for such bulk drug taking into
account the wrighted average of the retention price C
fixed under clause (a)." ·

Paragraph 4 is thus in the nature of an exception to paragraph 3. It is
meant to provide a fiHip to individual manufacturers of bulk drugs
whose production it is necessary to increase. Retention price, by its D
very definition pertains to individual manufacturers. Common sale
price, we take it, is the price at which manufacturers whose retentions
are fixed may sell the bulk drug despite the maximum sale price fixed
under paragraph 3.

Paragraph 5 deals with the power of the Government to fix
maximum sale price of new bulk drugs. Paragraph 6 enables the _E
Government to fix the maximum sale price of imported bulk. drugs
specified in First and Second Schedules. Paragraph 7 deals with the
power of the Government to fix retention price and pooled price for

J the sale of bulk drugs specified in the First and Second Schedules
which are both indigenously manufactured and imported. Paragraph 9
empowers the Govermnent to direct manufacturers of bulk drugs to
sell bulk drugs to manufacturers of formulations. Paragraph 10 pres-
cribes a formula for .calculating the retail price of formulations. The
F

formula is:

"R.P. = (M.C.+C.C.+P.M.+P.C.) x (l+MU)+ E.D.
G
100
"R.P." meaits retail price.

"M.C." means material cost and includes the cost of drugs
and other pharmaceutical aids used including overages, if
any, and process loss thereon in accordance with such H
868 SUPREME COURT REPORTS [1987] 2 S.C.R.

norms as may be specified by the Government from time to
A
time by notification in the official Gazatte in this behalf.

"C.C." means conversion cost worked out in accordance
with such norms as may be specified by the Government
from time to time by notification in the official Gazettee in
B this behalf.

"P.M." means the cost of packing material including pro- f·-
cess loss thereon worked out in accordance with such norms
as· may be specified by the Government from time to time -~'. •
by notification in the official Gazttte in this behalf.
c "P.C." means packing charges worked out in accordance
with such norms as may be specified by the Government
from time to time by notification in the official Gazette in
this behalf.

D "M. U." means make-up referred to in para. 11.

"E.D." means excise duty."

Paragraph 11 explains what 'Mark-up' means. Paragraph 12 empowers
the Government to fix leader prices of formulations of categories I and
E II specified in the third schedule. Paragraph 13 empowers the Govern-
ment to fix retail price of formulations specified in category III of third
schedule. Paragraph 14 contains some general provisions regarding
prices of formulations. Paragraph 15 empowers the Government to
revise prices of formulations.

F Paragraph 16 provides that where any manufacturer, importer or
distributor of any bulk drug or formulation fails to furnish information
as required under the order within the time specified therein, the
Government may, on the basis of such information as may be available
with it, by order, fix a price in respect of such bulk drug or formulatfon
as the case may be. Paragraph 17 requires the Government to maintain
G the Drugs Prices Equalization Account to which shall be credited, by
the manufacturer, among other items,

"the excess of the common selling price or, as tbe case may
be, pooled price over his retention price."

H It is provided that the amount credited to the Drugs Prices Equaliza-
UNION v. CYNAMIDE LTD. [CHINNAPPA REDDY, l.] 869

tion Account shall be spent for paying to the manufacturer, "the short-
A
·"'.· fall between his retention price and the common selling price or as the
case may be, the pooled price."

Paragraph 27 enables any person aggrieved by any notification or
order under paragraphs 3, 4, 5, 6, 7, 9, 12, 13, 14, 15 or 16 to apply to
the Government for a review of the notification or order within fifteen B
days of the date of the publication of the notification in the official
Gazette, or, as the case may be, the receipt of the order by him.

Bulk drugs constituting categories I and II are enumerated in the
First Schedule. Bulk drugs constituting category III are enumerated in
the Second Schedule. Formulations constituting categories I, II and III
are enumerated in the Third Schedule. The Fourth Schedule pres-
c
cribes the various forms referred to in the different paragraphs of the
Drugs (Prices Control) Order. Form No. 1 which is referred to in
paragraphs 3(4), 5 and 8(1) is titled "Form of application for fixation
or revision of prjces of bulk drug". The several columns of the Form
provide for various particulars to be furnished and item 18 requires the D
applicant to furnish "the cost of production of the bulk drug as per
proforma (attached) duly certified by a practising Cost/Chartered
Accountant". The 'proforma' requires particulars of cost-data, such
as, raw materials, utilities, conversion cost, total cost of production,
interest on borrowings, minimum bonus, packing, selling expenses,
transport charges, transit insurance charges, total cost of sales, selling E
price, existing ptice or notional or declared prices, etc. to be fur-
nished. A note at the end of the proforma requires the exclusion from
cost certain items of expenses, such as, bonus in excess of statutory
minimum, bad debts and provisions, donations and charities, loss/gain
on sale of assets, brokerage and comnrission, expenses not recognised
by income tax authorities and adjustments relating to previous years. F

Shri G. Ramaswamy, learned Additional Solicitor General on
behalf of the Union of India, submitted that the fixation of maximum
price under paragraph 3 of the Drugs (Prices Control) Order was a
legislative activity and, therefore, not subject to any principle of
natural justice. He urged that relevant information was required to be G
furnished and was indeed furnished by all the manufacturers in the
prescribed form as required by paragraph 3(4) of the Drugs (Prices
Control) Order. This information obtained from the various manu-
facturers was taken into account and a report was then obtained from
the Bureau of Industrial Costs and Prices, a high-powered expert body
specially constituted to undertake the study of industrial cost struc- H
870 SUPREME COURT REPORTS [1987] 2 S.C.R.

A lures and pricing problems and to advise the Government. It was only
thereafter that notifications fixing the prices were issued. He further ·y
submitted that paragraph 27 of the Central Order gave a remedy to the
manufacturers to seek a review of the order fixing the maximum price
under paragraph 3. The review contemplated by paragraph 27 in so far
as it related to the notification under paragraph 3, it was submitted by
B the learned Additional Solicitor General, did not partake the charac-
ter of a judicial or quasi-judicial proceeding. He urge\) that the
manufacturers had invoked the remedy by way of review, but before
the applications for review could be dealt with, they rushed to the court
with the writ petitions out of which the appeal and the special leave
J
petitions arise. He urged 'that the Government had always been ready
and willing to give a proper hearing to the parties and in fact gave them
C a hearing in connection with their review applications. The grievance
of the manufacturers in the writ petitions that they were not furnished )---
the details of the basis of the price fixation was not correct since full
information was furnished at the time of the hearing of the review
applications when the matter underwent thorough and detailed discus-
D sion between the parties and the Government as well as the Bureau of
Industrial Costs and Prices.

The submission of Shri Anil Diwan, learned counsel for the
respondents was that unlike other price control legislations, the Drugs --f ·
(Prices Control) Order was designed to induce better production by
E providing for a fair return to the manufacturer. Reference was made to
the Hathi Committee report which had recommended a return of 12 to
14% post tax return on equity, that is, paid up capital plus reserves and
the 'Statement on Drug Policy' which mentioned that ceiling prices .J..
may be determined by taking into account production costs and a r
reasonable return. Great emphasis was laid on the second clause of ·,.
F paragraph 3 of the 1979 Order which provides that in fixing the price of ~
a bulk drug, the 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 networth. It was sub-
mitted that the provision for an enquiry preceding the determination
of the price of a bulk drug, the prescription in paragraph 3 clause 2 that
G the average cost of production of the drug manufactured by an effi-
cient manufacturer should be taken into account and that a reasonable
return on networth should be allowed and the provision for a review of
the order dete1mining the price, established that price-fixation under
the Drugs (Prices Control) Order 1979 was a quasi-judicial activity
obliging the. observance of the rules of natural justice. The suggestion
H of the learned counsel was that the nature of the review under
UNION v. CYNAMIDE LTD. [CHINNAPPA REDDY·, J.] 871

paragraph 27 was so apparently quasi-judicial and that the need to A
"'f' know the reasons for the order sought to be reviewed was so real if the
manufacturer was effectively to exercise his right to seek the quasi-
judicial remedy of review, that by necessary implication it became
obvious that the Order fixing the maximum price must be considered
to be quasi-judicial and not legislative in character. The provision for
enquiry in the first clause of paragraph 3 and the prescription of the B
~ matters to be taken info account in the second clause of paragraph 3
\ further strengthened the implication, according to the learned counsel.

. L. It was contended that in any case, whatever be the nature of the
' · enquiry and the order contemplated by paragraph 3, the review for
which provision made by paragraph 27 was certainly of a quasi-judicial
character and, therefore, it was necessary that the manufacturers
should be informed of the basis for the fixation of the price and C
~ furnished with details of the same in order that they may truly and
effectively avail themselves of the remedy of review. If that was not
done, the remedy would become illusory. It was argued with reference
to various facts and figures that the price had been fixed in an arbitrary
manner and the Government was not willing to disclose the basis on D
which the prices were fixed on the pretext that it may involve dis-
. closure of matters of confidential nature. It was stated that the applica-
tions of the manufacturers for review of the notifications fixing the
-)- prices had not been disposed of for years though time was really of the
very essence of the matter. The prices of formulations were dependent
on the prices of drugs and it was not right that prices of formulations E
should have been fixed even before the applications for review against
the notifications fixing the price of bulk drugs were disposed of. It was

t·
. suggested that the delay in disposing of the review applications had the
effect of rendering the original notifications fixing the prices unreal
and out of date and liable to be struck down on that ground alone.
~ F
We are unable to agree with the submissions of the learned
counsel for the respondents either with regard to the applicability of
the principles of natural justice or with regard to the nature and the
scope of the enquiry and review contemplated by paragraphs 3 and 27
while making our preliminary observations, we pointed out that price
fixation is essentially a legislative activity though in rare circum- G
stances, as in the case of a compulsory sale to the Government or its
nominee, it may assume the character of an administrative or quasi-
judicial activity. Nothing in the scheme of the Drugs (Prices Control)
Order induces us to hold that price fixation under the Drugs (Prices
Control) Order is not a legislative activity, but a quasi-judicial activity
which would attract the observance of the principles of natural justice. H
872 SUPREME COURT REPORTS [1987] 2 S.C.R.

A Nor is there anything in the scheme or the provisions of ihe Drugs
(Prices Control) Order which otherwise contemplates the observance Y
of any principle of natural justice or kindred rule, the non·observance
of which would give rise to a cause of action to a suitor. What the order
does contemplate however is 'such enquiry' by the Government 'as it
thinks fit'. A provision for 'such enquiry' as it thinks fit' by a subordi-
B nate legislating body, we have explained earlier, is generally an enabl-
ing provision to facilitate the subordinate legislating body to obtain }._
relevant information from any source and it is not intended to vest any /
right in any body other than the subordinate legislating body. In the _-.J, _
present case, the enquiry contemplated by paragraph 3 of Drugs '
(Prices Control) Order is to be made for the purposes of fixing the
c maximum price at which a bulk drug may be sold, with a view to
regulating its equitable distribution and making it available at a fair \_
price. The primary object of the enquiry is to secure the bulk drug at a r-
fair price for the benefit of the ultimate consumer an object designed
to fulfil the mandate of Art. 39(b) of the Constitution. It is primari_ly
from the consumer public's point of view that the Government b ex-
D pected to make its enquiry. The need of the consumer public is to be
ascertained and making the drug available to them at a fair price is
what it is all about. The enquiry is to be made from that angle and
directed towards that end. So, information may be gathered frnm
whatever source considered desirable by the Government. The -f
enquiry, obviously is not to be confined to obtaining information from
E the manufacturers only and indeed must go beyond. However, the
interests of the manufacturers are not to be ignored. In fixing the price
of a bulk drug, the Government is expressly required by the Order to
take into account the average cost of production of such bulk drug +
manufactured by 'an_ efficient manufacturer' and allow a reasonable l\
return on 'net worth'. For this purpose too, the Government may ~
F gather information from any source including the manufacturers. Here
again the enquiry by the Government need not be restricted to 'an
efficient manufacturer' or some manufacturers; nor need it be exten-
ded to all manufacturers. What is necessary is that the average cost of
production by 'an efficient manufacturer' must be ascertained and a
reasonabl_e return allowed on 'net worth'. Such enquiry as it thinks fit
G is an enquiry in which information is sought from whatever source
considered necessary by the enquiring body and is different from an
enquiry in which an opportunity is required to be given to persons
likely to be affected. The former is an enquiry leading to a legislative
activity while the latter is an enquiry which ends in an administrative
or quasi-judicial decision. The enquiry contemplated by paragraph 3
H of the Drug (Prices Control) Order is an enquiry of the former charac-
UNION v. CYNAMIDE LTD. jCH!NNAPPA REDDY, J:] 873

ter. The legislative activity being a subordinate or delegated legislative A
---r. activity, it must necessarily comply with the statutory conditions if any,
I
no1111Jre anct-no less, and no implications of natural justice can he read
into it unless it is a statutory condition. Notwithstanding that the price
fixation is a legislative activity, the subordinate legislation had taken
care here to provide for a review. The review provided by paragraph
27 of the order is akin to a post decisional hearing which is sometimes B
afforded after the making of some administrative orders, but not truly
so.

It is a curious amalgam of a hearing which occasionally precedes
a subordinate legislative activity such as the· fixing of municipal rates
etc. that we mentioned earlier and a post-decision hearing after the C
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 public to bring to the notice of the subordi-
nate legislating body the difficulties or problems experienced or likely
to be experienced by them consequent on the price fixation, where- D
upon 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 manu-
, )' facturers of the bulk drug as well as the consumer public. 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 modifi- E
cation 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 acti-
7 vity. The true nature of the review provided by paragraph 27 in so far
_.)., as it relates to the fixation of maximu.m price of bulk drugs under F
paragraph 3 leader price and prices of formulations under paragraphs
12 and 13 is hard to define. It is difficult to give it a label and to fit it
into a pigeon-hole, 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
paragraph 27, the Review in so far as it concerns the orders under
paragraph 3, 12 and 13 appears to be in the nature of a legislative G
review of legislation, or more precisely a review of subordinate legisla-
tion by a subordinate legislating body at the instance of an aggrieved
person. Once we have ascertained the nature and character of the
review, the further question regarding the scope and extent of the
review is not very difficult to answer. The reviewing authority has the
fullest freedom and discretion to prescribe its own procedure and con- H
874 SUPREME COURT REPORTS [1987] 2 S.C.R.

A sider the matter brought before it so long as it does not travel beyong
the parameters prescribed by paragraph 3 in the ·case of a review y
against an order under paragraph 3 and the respective other para-
graphs in the case of other orders. But whatever procedure is adopted,
it must be a procedure tuned to the situation. Manufacturers of any
B bulk drug are either one or a few in number arid generally they may be
presumed to be well informed persons, well able to take care of
themselves; who have the assistance of Accountants, Advocates and ,...
experts to advise and espouse their cause. In the context of the Drug
industry with which we are concerned and in regard to which the
~.
Control Order is made we must proceed on the basis that the •
manufacturers of bulk drugs are generally persons who know all that is
c to be known about the price fixed by the Government. From the
legislative nature of the activity of the Government, it is clear that the
Government is under no obligation to make any disclosure of any
information received and considered by it in making the order but in
>-
order to render effective the right to seek a review given to an
D aggrieved person we think that the Government, if so requested by the
aggrieved manufacturer is under an obligation to disclose any relevant
information which may reasonably be disclosed pertaining to 'the aver-
age cost of production of the bulk drug manufactured by an efficient
manufacturer' and 'the reasonable return on net worth'. For example,
the manufacturer may require the Government to give information -r
regarding the particulars detailed in Form No. 1 of the Fourth
E
Schedule which have been taken into account and those which have
been excluded. The manufacturer may also require to be informed the
elements which were taken into account and those which were
excluded in assessing the 'free reserves' entering into the calculation of
'net worth'. These particulars which he may seek from the Govern- ~ ..,
~-
F ment are mentioned by us only by way of illustration. He may seek any
other relevant information which the Government shall not unreason-
ably deny. That we think is the nature and scope of the review cont em-
plated by Paragraph 27 in relation to orders made under Paragraph·s 3,
12 and 13.

On the question of the scope of a Review, the learned counsel for
G
the respondents invited our attention to Vrajla/ Manila/ & Co. v.
Union of India & Anr., [1964] 7 SCR 97; Shivaji Nathubhai v. Union of 'r
India & Ors., [1960] 2 SCR 775; Maneka Gandhi, [1978] 2 SCR 621;
Swadeshi Cotton Mills, [1981] 2 SCR 533; and Liberty Oil Mills.,
[ 1984] 3 SCR 676. We are afraid none of these cases is of any assistance
H to the correspondence since the court was not concerned in any of
UNION v. CYNAMIDE LTD. [CHINNAPPA REDDY, J.] 875

those cases with a review of subordinate legislation by the subordinate A
legislating body.

In Vrajlal Manila/ & Co. v. Union of India & Anr. (supra) the
court held that the Union of India when disposing of an application for
review under Rule 59 of the Mines Concession Rules functioned as a
quasi-judicial authority and was bound to observe the principles of B
natural justice. The decision rendered without disclosing the report of
the State Government and without affording reasonable opportunity
to the appellants to present their case was contrary to natural justice
was therefore, void. In Shivaji Nathubhai v. Union of India & Ors.,
(supra) it was decided by the court that the power of review granted to
the Central Government under Rule 54 of the Mineral Concession
Rules required the authority to act judicially and its decision would be
c
a quasi-judicial act and the fact that Rule 54 gave power to the Central
Government to pass such order as it may deem 'just and proper' did
not negative the duty to act judicially. In Maneka Gandhi's case where
Bhagwati, J. while expounding on natural justice pointed out that in
appropriate cases where a pre-decisional hearing was impossible, there D
must atleast be a post-decisional hearing so as to meet the requirement
of the rule audi alteram partem. In Swadeshi Cotton Mills, it was
observed that in cases where owing to the compulsion of the fact-
situation or the necessity of taking speedy action, no pre-decisional
hearing is given but the action is followed soon by a full post-decisional
hearing to the person affected, there is in reality no exclusion of the E
'lludi alteram partem rule. It is no adaptation of the rule to meet the
situational urgency. In Liberty Oil Mills v. Union of India, (supra) the
question arose whether clause SB of the Import Control Order,. which
~ empowered the Central Government or the Chief Controller to keep
.J in abeyance applications for licences or allotment of imported goods
where any investigation is pending into an imported goods where any F
investigation is pending into an allegation mentioned in clause 8 ex-
cluded the application of the principles of natural justice. The court
pointed out that it would be impermissible to interpret a statutory
instrument to exclude natural justice unless the language of the instru-
ment left no option to the court. As we said, these cases have no
application to a review of subordinate legislation by the subordinate G
legislating body at the instance of a party.

We mentioned that the price fixed by the Government may be
questioned on the ground that the considerations stipulated by the
order as relevant were not taken into account. It may also be ques-
' tioned on any ground on which a subordinate legislation may be H
876 SUPREME COURT REPORTS [1987] 2 S.C.R.

A questioned, such as, being contrary to constitutional or other statutory
provisions. It may be questioned on the ground of a denial of the right
guaranteed by Art. 14 if it is arbitrary, that is, if either the guidelines
prescribed for the determination are arbitrary or if, even though the
guidelines are not arbitrary, the guidelines are worked in an arbitrary
fashion. There is no question before us that paragraph 3 prescribes any
B
arbitrary guideline. It was, however, submitted that the guidelines
were not adhered to and that facts and figures were arbitrarily as-
sumed. We do not propose to delve into the question whether there
has been any such arbitrary assumption of facts and figures. We think
that if there is any grievance on that score, the proper thing for the ~·.
manufacturers to do is bring it to the notice of the Government in their
c applications for review. The learned counsel argued that they were unable
to bring these facts to the notice of the Government as they were not
furnished the basis on which the prices were fixed. On the other hand,
it has been pointed out in the counter-affidavits filed on behalf of the
Government that all necessary and required information was furnished
in the course of the hearing of the review applications and· there was no
D justification for the grievance that particulars were not furnished. We
are satisfied that the procedure followed by the Government in fur-
nishing the requisite particulars at the time of the hearing of the review
applications is sufficient compliance with the demands of fair play in
the case of the class of persons claiming to be affected by the fixation
of maximum price under the Drugs (Prices Control) Order. As already
'+··
E stated by us, manfuacturers of bulk drugs who claim to be affected by
the Drugs (prices Control) Order, belong to a class of persons who are
well and fully informed of every intricate detail and particular which is
required to be taken into account in determining the price. In most
cases, they are the sale manufacturers of the bulk drug and even if they ~
are not the sole manufacturers, they belong to the very select few who
F manufacture the bulk drug. It is impossible to conceive that they can-
not sit across the table and discuss item by item with the reviewing
\.
authority unless they are furnished in advance full details and particu-
lars. The affidavits filed on behalf of the Union of India show that the
procedure which is adopted ih hearing the review applications is to
discuss across the table the various items that have been taken into
G account. We do not consider that there is anything unfair in the proce-
dure adopted by the Government. If necessary it is always open to the
manufacturers to seek a short adjournment of the hearing of the re-
view application to enable them to muster more facts and figures on
their side. Indeed we find that the hearing given to the manufacturers
is often protected. As we said we do not propose to examine this ques-
H
UNION v. CYNAMIDE LTD. [CHINNAPPA REDDY. J.] 877

tion as we do not want to constitute ourselves in)o a court of appeal A
~ over the Government in the matter of price fixation.
'
The learned counsel argued that there were several patent errors
which came to light during the course of the hearing in the High Court.
He said that obsolete quantitative usages had been taken into consi- B
deration, proximate cost data had been ignored and the data relating
to the year ending November, 1976 had been adopted as the basis. It
was submitted that there were ~rrors in totalling, errors in the calcula-
tion of prices of utilities, errors in the calculation of net-worth and
"'·--many other similar errors. As we pointed out earlier, these are all
matters which should legitimately be raised in the review application,
if there is any substance in them. These are not matters for investiga- c
tion in a petition under Art. 226 of the Constitution or under Art. 32 of
the Constitution. Despite the pressing invitation of Shri Diwan to go
into facts and figures and his elaborate submissions based on facts and
figures, we have carefully and studiously refrained from making any
reference to such facts and figures as we consider it outside our pro-
vince to do so and we do not want to set any precedent as was sup-
D·
posed to have been done in Premier Automobiles though it was not so
done and, therefore, needed explanation in later cases.

One of the submissions of Shri Diwan was that in calculating
"net-worth" the cost of new works in progress and the amount in-
E
vested outside the business were excluded from 'free reserves' and that
such exclusion could not be justified on any known principle of
accountancy. We think that the question has to be decided with refer-
ence to the definition of 'free reserve' in paragraph 2(g) of the Control
Order and not on any assumed principle of accountancy. This is also a
question which may be raised before the Government in the review
F
application. Referring to the 'proforma' attached to Form No. 1 of the
Fourth Schedule in which are set out several items which have to be
taken into account in assessing the cost of production, the learned
counsel attacks the notes at the end of Item No. 14 which mentions the
various items of expenses to be excluded in ascertaining the cost. The
notes is as follows:- G
"Notes:- (i) Items of expenses to be excluded from
costs-
(a) Bonus in excess of statutory minimum.
(b) Bad debts and provisions. H
878 SUPREME COURT REPORTS [1987] 2 S.C.R.

A (c) Donations and charities.
(d) Loss/Gain on sale of assets. t
(e) Brokerage and commission.
(f) Expenses not recognized by Income-tax
B authorities (salary/prequisities, advertise-
ments, etc.).
(g) Adjustments relating to previous years."

In particular, he argued that Item (a) 'bonus in excess of statutory- ~.
minimum' should not have been excluded so also items.of expenditure
c coming under the other heads (b) to (g) which had been allowed by
Income-tax authorities as legitimate expenses. His submission was that
where bonus in excess of statutory minimum was payable under the
provisions of the Bonus Act there was no option left to the manu-
facturer not to pay/the excess bonus. Similarly where expenses have
D been legitimately incurred and allowed by Income-tax authorities,
there was no justification for excluding those items of expenditure
from the cost. We do not agree with the submission. It was open to the
subordinate legislating body to prescribe and adopt its own mode of
ascertaining the cost of production and the items to be included and
excluded in so doing. The subordinate legislating body was under no
E obligation to adopt the method adopted by the Income-tax authorities
in allowing expenses for the purpose of ascertaining income and asses-
sing it. There may be many items of business expenditure which may
be allowed by Income-tax authorities as legitimate expenses but which
can never enter the cost of production. So long as the method pres-
cribed and adopted by the subordinate legislating body is not arbitrary ~
F and opposed to the principal statutory provisions, it cannot be legiti- \ "
mately questioned. Another submission of the learned counsel relating
to the norms for conversion costs, packing charges and process loss of
'°'·
raw materials and packing materials required to the notified for the
purpose of calculating retail prices of formulations. The argument, for
example, was that there should be a more scientific formula in regard
G to conversion cost and not, as was done, so many rupees and paise per
thousand capsules or one litre of liquid. We do not agree with the
submission. It is open to the subordinate legislating authority to adopt
a rough and ready but otherwise not unreasonable formula rather
than a needlessly intricate so-called scientific formula. We are unable
to say that the subordinate legislating authority acted unreasonably in
H prescribing the norms in the manner it has done.
UNION v. CYNAMIDE LTD. [CHl\:\APPA REDDY. J [ 879

While on the question on formulations, we would like to refer to A
the "Oration" of Dr. N .H. Antia at the 24th Annual Convocation of
the Nati on al Academy of Medical Sciences where ·he posed the
question:

"Why do we produce 60,000 formulations of drugs worth
B
...... Rs.2,500 crores which rea ;h only 20% of the population
when WHO recommends only 258 drugs and Rs.750 crores
~ worth would suffice for all our people if used in an ethical
' manner?''
• A general submission of the learned counsel was that the price of
formulations should not have been prescribed until the review applica- c
tion filed by the manufacturer in regard to the patent bulk drugs was
-{ disposed of. He submitted that the price of a formulation was
dependant on the price of the bulk drug and it was, therefore, not right
to fix the price of formulation when the price of bulk drug was in
question in the review application and there was a prospect of the price
D
of the bulk drug being increased. We do not see any force in the
submission. We think that it is the necessary duty of the Government
to proceed to fix the retail price of a formulation as soon as the price of
the parent bulk drug is fixed. Price fixation of a formulation is no

t doubt dependant on the price of the bulk drug, but it is not to await the
result of a review application which in the end may tum out to be
E
entirely without substance. If a review application is allowed and the
price of the bulk drug is raised and if in the meanwhile, the formula-
lion had been· ordered to be sold at a low price, it may result in
considerable loss to the manufacturer. But on the other hand, if the
J review application turns out to be entirely without substance and has
to be rejected and if in the meanwhile the formulation is allowed to be
) sold at a higher price, the consumer public suffers. Thus, the ups and
F
downs of commerce are inevitable and it is not possible to devise a
fool proof system to take care of every possible defect and objection. It
is certainly not a matter at which the court could take a hand. All that
the cuurt may do is to direct the Government to dispose of the review
application expeditiously according to a time-bound programme. All

~
G
that the Government may do is to dispose of the review application
with the utmost expedition. But as we perceive the public interest, it is
necessary that the price of formulation should be fixed close on the
heels of the fixation of bulk drug price.

Another submission of Shri Diwan was that there was consi- H
derable delay it1 the disposal of the review applications by the Govern-
880 SUPREME COURT REPORTS [1987] 2 S.C.R.

ment and that even now no orders had been passed in several cases.
A
Accordingly to the learned counsel, the very delay in the disposal of
review applications was sufficient to vitiate the entire proceeding and
scheme of price fixation. According to the learned counsel, the price
of a bulk drug is dependant on many variable ·factors which keep
changing very fast. If time is allowed to lapse whatever price is fixed, it
B soon becomes out of date. If review applications are not disposed of
expeditiously the notifications fixing the prices must be struck down as
having become obsolete. It is difficult to agree with these propositions.
It is true t~at the price of a bulk drug is dependent on innumerable
variables. But it does not follow that the notification fixing the
maximum price must necessarily be struck down as obsolete by the
mere passage of time. We agree that applications for review must be
c dealt with expeditiously and whenever they are not so dealt with, the
aggrieved person may seek a mandamus from the court to direct the
Government to deal with the review application within a time frame-
work.

D We notice that in all these matters, the High Court granted stay
of implementation of the notifications fixing the maximum prices of
bulk drugs and the· retail prices of formulations. We think that in
matter of this nature, where prices of essential commodities are fixed ·
in order to maintain or increase supply of the commodities or for
securing the equitable distribution and availability at fair prices of the
E commodity, it is not right that the court should make any interim order
staying the implementation of the notification fixing the prices. We
consider that such orders are against the public intere~ and ought not
to be made by a court unless the court is satisfied that no public
interest is going to be served. In the present case, on ex-parte interim
order was made on April 20, 1981 in the following terms:
F
"In the meanwhile on the petitioners' giving an under-
takings to maintain prices both for bulk and formulation, as
were prevailing prior to the impugned notification we stay
implementation of the impugned bulk drug prices as well as
formulation prices."
G
Thereafter on November 25, 1981, a further order was made to the

-
following effect:

"After hearing learned counsel and with their con-
sent, and arrangement has been worked out as on interim
H measure. We, therefore, confirm till further orders the
UNION v. CYNAMIDE LTD. (CH!NNAPPA REDDY, I.] 881

interim order made by us on April 20, 1981. The terms of
A
the said order, that is on the undertaking given on behalf of
the petitioners to maintain status quo on the prices prevail;
ing prior to the issue of the impugned notification, the
petitioners, through their counsel further given an under-
taking to this court that, in case the petition is dismissed
and the rule is discharged, the petitioners shall within eight B
weeks of the dismissal of the petition by this court, deposit
in this court the difference in the prices of the formulations
in question for being , . , . , . equalization account. The
petitioners, through their counsel further given an under-
taking that in this court the petitioners would not contend
or challenge the said amount if deposited, is not liable to be
deposited under any law whatsoever. It is made clear that
c
the undertaking is without prejudice to the petitioners'
right to take appropriate directions from the_ Supreme
Court if so advised in this regard."

No doubt the order as made on November 25, 1981 has. the D
manufacturers on terms, but the consumer public has been left high
and dry. Their interests have in no way been taken care of. In matters
of fixation of price, it is the interest of the consumer public that must
come first and any interim order must take care of that interest. It was
argued by the learned counsel that the undertaking given by the
parties lapsed with the disposal of the writ petition by the High Court E
and that it could no longer be enforced. We do not agree with this
submission. Apart from the fact that an appeal is ordinarily considered
to be a continuation of the original proceeding, in the present case, we ·
notice that further orders of the Supreme Court were also in contem-
plation and such further orders could only be if appeals were preferred
to the Supreme Court. We do not think that there was any doubt in F
anyone's mind that the matter would be taken up in appeal to the
Supreme Court whichever way the writ petitions were decided. We are
of the view that the undertakings given by the parties in the present
cases were intended to and do continue to subsist.

On the conclusions arrived at by us we have no doubt that the G
appeal must be allowed and tlie ·writ petition in the High Court dismis-
sed. However, we think that it is necessary to give a direction to the
Government to dispose of the review applications after giving a notice
of hearing to the manufacturer. The hearing may be given within two
months from today and the review application. disposed of within two
weeks after the conclusion of the hearing. Any information sought by H

•
882 SUPREME COURT REPORTS [1987] 2 S.C.R.

A the manufacti:,-er may be given to him at the hearing in terms of what
we have said in the judgment. The Union of India is entitled to the
costs of the appeal and the writ petition in the High Court.

It appears that although several writ petitions filed by different
manufacturers were disposed of by the High Court by a common judg-
8
ment, the Union of India filed an appeal within the prescribed period
of limitation against one of the manufacturers, Cynamide India
Limited only. This was apparently done under some misapprehension
that it would be enough if a single appeal was filed. Later when it was
realized that separate appeals were necessary, the Union of India filed
petitions for special leave to appeal against the other manufacturers
C also. As these petitions were filed beyond the prescribed period of
limitation, petitions for condoning the delay in filing the petitions for
special leave to appeal had to be and were filed. These applications are
strenuously opposed by the manufacturers who contend the ordinary
rule which is enforced in cases of delay namely that everyday's delay
D must be properly explained should also be rigorously enforced against
the Government. It is contended that the Government is a well verse
litigant as compared with private litigants and even if there is justifica-
tion of adopting a liberal approach in condoning delay in the case of
private litigants there was no need to adopt such approach in the case
of the Government. In cases like the present where parties have acted
on the assumption that no appeals had been filed against them and have
E proceeded to arrange their affairs accordingly it would be unjust to
condone the delay in filing the appeals at the instance of the Govern-
ment. Though we see considerable force in the submission of Shri
Diwan, we think that the circumstances of the instant cases do justify
the exercise of our discretion to condone the delay. Two important
features have weighed with us in condoning the delay. One is that all
F the writ petitions were disposed of by a· common judgment and an
appeal had been filed in the principal case. The other is that it is a
matter of serious concern to the public interest. We, therefore, con-
done the delay, grant special leave in all the petitions for special leave
and direct the appeals to be listed for hearing on May I, 1987.

P.S.S. Appeal allowed.