Holding

The notifications issued under Paragraph 7 of the DPCO 1995 and the subsequent price‑fixing notifications under Paragraphs 8 and 9 are valid, were not mechanically issued, and the requirement to prescribe norms annually is discretionary, not mandatory.

Summary

The Supreme Court examined the validity of several notifications issued by the Central Government under the Drugs (Prices Control) Order, 1995 (DPCO 1995) that prescribed norms for conversion cost, packing charges and process loss, and fixed retail or ceiling prices of drug formulations. The Court held that the 1999 notification and the re‑notifications of 2000‑2003 were issued after due application of mind, were not arbitrary, and that annual re‑prescription of norms is discretionary, not mandatory. It also ruled that fixing prices without a separate norm for packing material cost is lawful, and that fixing formulation prices without first fixing bulk‑drug sale prices is permissible. The Court rejected the claim that the notifications were mechanically issued, affirmed the availability of an alternative remedy under DPCO 1995, dismissed allegations of forum‑shopping, and set aside the High Court judgments, allowing the Union of India’s appeals and dismissing those of Dr. Reddy’s Laboratories.

Issues considered

Whether the 13 July 1999 notification under Paragraph 7 of DPCO 1995 was issued mechanically or without application of mind
Whether the re‑notifications of 2000‑2003 under Paragraph 7 were invalid for not re‑determining norms annually
Whether price‑fixing notifications under Paragraphs 8 and 9 are valid without a norm for packing‑material cost
Whether a formulation’s retail price can be fixed under Paragraph 8 without first fixing the bulk‑drug sale price under Paragraph 3
Whether the power exercised by the Central Government is amenable to judicial review
Whether the petitioners were engaged in forum‑shopping
Whether interim orders restraining price‑fixation should be granted in public‑interest matters

Legislation cited

Drugs (Prices Control) Order, 1995s. Paragraph 27, s. Paragraph 3, s. Paragraph 6, s. Paragraph 7, s. Paragraph 8, s. Paragraph 9
Essential Commodities Act, 1955s. Section 3

Subjects

drug price controlDPCO 1995price fixationnorms prescriptionjudicial reviewessential commoditiespharmaceutical industryforum shoppinginterim relief

Judgment

[2016] 7 S.C.R. 523

UNION OF INDIA & ORS. A
v.
MIS. CIPLA LTD. & ANR.
(Civil Appeal No.329 of2005)
OCTOBER 21, 2016 8
[MADAN B. LOKUR AND R.K. AGRAWAL, JJ.]
Drugs (Prices Control) Order, 1995 - Paragraphs 7, 8, 9:
Notification dated 13. 0 7.1999 - Issuance by the Central
government under Paragraph 7 prescribing of norms for conversion c
cost, packing charges and process loss of raw materials (other than
packing materials in conversion) and packing and process loss of
packing materials in packaging - Validity of - Held: Notification is
valid - They were issued after due application of mind and based
on available material duly examined by an expert body -
D
Notifications were not arbitrarily issued nor were they discriminatory
in any manner at all nor were they issued mechanically.
Notifications dated 12.07.2000, 12.07.2001, 12.07.2002 and
11.07.2003 - Issuance by Central Government under Paragraph 7
re-notifYing the norms prescribed on 13.07.1999 - Validity of-
Held: Are valid and were not issued mechanically or without any E
application of mind and it was not necessary to re-determine the
norms every year as required by DPCO, 1995.
Issuance of notifications by the Central Government fixing
the retail price or ceiling price of formulations under Paragraphs
8 and 9 without determining the norm for cost of packing material F
as required by Paragraph 7 - Validity of - Held: Are valid.
Fixation of retail price of a formulation under Paragraph 8
without first fixing the sale price of a bulk drug under Paragraph 3
utilized in the manufacture of a formulation - Validity of - Held: ls
valid in law. G

Judicial review: Power of - Notification issued by Central
Government under Paragraph 8 or 9 - Held: Action of a repository
of power is also amenable to judicial review if it is contrary to or
violates the mandatory requirement of a subordinate legislation - If
H
523
524 SUPREME COURT REPORTS [2016] 7 S.C.R.

A Central Government does not adhere to the formula given in
Paragraph 7 and fixes the retail price or ceiling price of
formulations, notification issued under Paragraph 8 or 9 is liable
to quashed being contrary to law - However, no instance pointed
out to use the power of judicial review and quash the notifications
- Drugs (Prices Control) Order, 1995 - Paragraphs 7, 8, 9.
B
Alternative remedy: Availability of - Manufacturer or
formulator aggrieved by fixing of retail or ceiling price of any
for111ulation - Alternative remedy available under the DPCO 1995
- Submission that norms not prescribed to 111ake effective case for
revision or review of price notification - Held: lf any manufacturer
c or formulator had preferred a revision or review application, all
necessary material would have been 111ade available to the
complainant for an effective representation - None of the parties
were precluded, in fact, some of them did - In view of the availability
of an alternative and efficacious remedy under the DPCO 1995,
D the writ petitions by the manufacturers and formulators ought not
to have been entertained by the concerned High Courts, but it is
left at that - Drugs (Prices Control) Order, 1995.
Forum shopping: Court to adopt a functional test vis-a-vis the
litigation and the litigant - It is to be seen whether there is any
E functional similarity in the proceedings between one Court and
another or whether there is so111e sort of subterji1ge on the part of a
litigant - Functional test would determine whether a litigant is
indulging in forum shopping or not - On facts, on examination of
relief claimed by 'C' Company in the different High Courts, it is
found that they have no substantive connection whatsoever with
F the relief claimed in the Allahabad High Court - 'C' company s
petitions do not fall under any category of forum shopping.
Practice and procedure: Practice of placing scanty material
before the High Courts, and placing volumes of documents before
this Court - Held: Such practice degrade the importance of
G proceedings in the High Court and could subsequently embarrass
the High Court which might inadvertently base its decision on
insufficient material resulting in possibility of an incorrect decision
which is liable to be set aside - Such practice is to be discouraged
- For better adjudication of disputes, it is appropriate for all litigants
H to place 011 record all the material before the court offirst instance.
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 525

Interim order: Matters pertaining to sale of formulations at A
retail price or ceiling price fixed by Central Government through
notifications issued under the DPCO - Issuance of interim order -
Held: Matters having financial and economic implications, where
public interest. is involved, the Court ought to be circumspect in
granting any interim relief - Consequence of an interim order might
B
be quite serious to society and consumers and might cause damage
to public interest and have a long term impact - Drugs (Prices
Control) Order, 1995.
Drugs and medicines: Working of drug industry - Interference
by the courts - Held: Courts have to be extremely cautious in
interfering in any manner whatsoever with the working of the drug
c
industry - Not only is the drug industry in the country extremely
large with heavy financial stakes but there is lot at stake in it not
only for the industry but also for the consumers - Any interference
by the Courts would have wide ranging repercussions not only in
commercial terms but also for the people of the country. D
Allowing the appeals filed by the Union of India and
dismissing the appeals by Dr. Reddy's Laboratories Ltd., the
Court
HELD: 1. The notification dated 13.07.1999 issued by the
Central government under Paragraph 7 of the Drugs (Prices E
Control) Order, 1995 prescribing !he norms for conversion cost,
packing charges and process loss of raw materials (other than
packing materials in conversion) and packing and process loss
of packing materials in packaging is valid and that the notification
was not issued mechanically or without any application of mind. F
The notifications dated 12.07.2000, 12.07.2001, 12.07.2002 and
11.07.2003 issued by the Central Government under Paragraph
7 of the Drugs (Prices Control) Order, 1995 re-notifying the norms
prescribed on 13.07.1999 are valid and were not issued
mechanically or without any application of mind and that it was
not necessary to determine the norms every year as required by G
the Drugs (Prices Control) Order, 1995 and they are valid in law.
Various notifications issued by the Central Government fixing
the retail price or ceiling price of formulations under Paragraphs
8 and 9 (as the case may be) of the Drugs (Prices Control) Order,
1995 without determining the norm for cost of packing material H
526 SUPREME COURT REPORTS [2016] 7 S.C.R.

A as required by Paragraph 7 of the Drugs (Prices Control) Order,
1995 are valid in law. Fixing the retail price of a formulation under
Paragraph 8 of the Drugs (Prices Control) Order, 1995 without
first fixing the sale price of a bulk drug under Paragraph 3 of the
Drugs (Prices Control) Order, 1995 utilized in the manufacture .
of a formulation is valid in law. The impugned judgments and
B
orders are set aside. [Paras 173, 174) (602-C-H; 603-A-B)

2.1 The view in *Raya/aseenut Paper case would apply to
the Reports of the Masood Committee and the Jharwal Committee
set up by the Central Government for recommending the norms
c for the purposes of Paragraph 7 of the DPCO 1995. The Reports
were antecedent materials, non-statutory and recommendatory
and could have been rejected by the Central Government. The
Masood Committee did not (and perhaps could not) recommend
any norms for conversion cost, packing charges and process loss,
except for cost of packing material (without process loss). The
D Masood Committee was alive to the statutory requirement of
prescribing the norms on a yearly basis and therefore referred to
it. However, as far as the Report of the Jharwal Committee is
concerned, the Central Government accepted and implemented
it by issuing a notification on 13.07.1999 under Paragraph 7 of
E the DPCO 1995 - but still did not prescribe the norms for cost of
packing material recommended by the Masood Committee.
[Paras 93, 94) [573-D-F]
Rayalaseema Paper Mills Ltd. v. Government of A.P.
2002 (3) Suppl. SCR 323 : (2003) 1 SCC ~41- referred
F to.
2.2 While the counsel for 'C' company might have serious
differences of opinion with the recommendations of these
particular non-statutory Reports, generally a challenge to Reports
prepared by expert bodies is not easy but is subject to lesser
G judicial scrutiny. A factor here or a factor there that should have
been taken into account but has been ignored should not
invalidate the Reports-mere errors in the Reports are not subject
to judicial review. That there can be a legitimate difference of
opinion (sometimes serious) bet"tVeen two expert bodies is not at
all unusual. [Paras 95, 96) [573-G-H; 574-A-B]
H
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 527

Prag Ice and Oil Mills and Anr. v. Union of India 1978 A
(3) SCR 293:(1978) 3 SCC 459 - relied on.
Shri Sitaram Sugar Co. Ltd. v. Union of India 1990 (1)
SCR 909:(1990) 3 SCC 223 - referred to.
Railroad Commission of Texas v. Rowan & Nichols Oil
B
Company 311 US 570, 85 L Ed 358 - referred to.
2.3 The feel of the expert is important, if not conclusive.
The two expert Committees made their recommendations. These
recommendations were then examined and considered by the
Central Government and on the basis of the expert conclusions
arrived at, the norms were prescribed by a notification dated c
13.07.1999 issued under Paragraph 7 of the DPCO 1995. Under
the circumstances, the question of judicial scrutiny of the Reports
of the Masood Committee and the Jharwal Committee and the
acceptance of their recommendations by the Central Government
is not only limited, but in this case it does not arise. It cannot be D
said that the notification dated 13.07.1999 was based on no
material or was issued without any application of mind. The
counsel for 'C' company may disagree with the contents of the
materials, but cannot ignore their existence or that they were
considered by the Central Government. [Para 97) (574-G-H; 575-
A-B) E
2.4 Fixing the price of any commodity is not only difficult
but also tricky. There is material to be considered, a bundle of
factors to be considered and appropriate weight is to be given to
the material and the factors. This is not easy to decide and there
will always be some criticism with regard to either the material F
utilized or the factors considered or the weight attached to the
materials and factors. In matters pertaining to drug formulations,
it is not only an issue of demand and supply but also the ability of
a common person to afford the formulation. At the same time,
the manufacturer must also make some profit and be in a position
G
to invest in research and development. There simply cannot be
any mathematical precision in fixing the price of a commodity.
More than enough elbow room or a play in the joints is required
to be given in such matters-and even then the price fixing
authority may commit an error. Once this is appreciated, it will
be realized that the task before the Central Government in H
528 SUPREME COURT REPORTS [2016] 7 S.C.R.

A prescribing the norms was not easy. (Para 98) (575-C-E)
3.1 It is true that no manufacturer/formulator is under an
obligation to furnish whatever information is required by the
Central Government including information that might be
confidential. But that does not mean that absolutely no
B information should be supplied by any company or incomplete
information should be supplied by a very few of them. It would
certainly be more appropriate for each company to have
responded to the questionnaires sent with a communication that
some particular information is not being furnished for reasons of
confidentiality. But no such courtesy was extended. While there
c may not be a statutory obligation on each manufacturer/formulator
to furnish information for prescribing the norms, there is certainly
a moral and social obligation on them to furnish information so
that appropriate norms could be notified not only for their benefit
but also for the benefit of the consumers. The preamble to the
D Essential Commodities Act, 1955 cannot be forgotten. By not
furnishing the information required, the drug industry pushed
· the Central Government into a corner leaving it with no option
but to prescribe the norms on the basis of available material and
later re-notify the norms. It is also true that fixing the price of
formulations based on the norms prescribed under Paragraph 7
E of the DPCO 1995 is a legislative activity which the Central
Government was obliged to carry out on its own research and
assessment, assuming there was no cooperation from the
manufacturers/formulators. The efforts made by the Masood
Committee and the Jharwal Committee for prescribing the norms
F for the purposes of Paragraph 7 of the DPCO 1995 were steps
leading up to this legislative activity. It is nobody's case that no
preliminary steps were taken or that no exercise was undertaken
for arriving at appropriate norms - the steps and exercise were
in fact undertaken through expert Committees but the material
used in the exercise and the resultant reports were criticized by
G the counsel for 'C' company. Given the circumstances that the
two Committees were faced with and given the virtual non-
cooperative attitude of the drug industry, the Central Government
prescribed the norms and 'C' company and the drug industry
were obliged to accept them as notified without much ado. It
H cannot be that the drug industry does not supply necessary
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 529

information and data to the expert Committees appointed by the A
Central Government and then blames the Central Government
for taking a decision without necessary information and data. The
failure of the drug industry to extend effective cooperation appears
to be an endemic problem. [Paras 102, 103, 104) [576-E-H; 577-
A-D]
B
3.2 The antecedent materials (the Reports) on the basis of
which the norms were recommended and then prescribed under
Paragraph 7 of the DPCO 1995 are subject to lesser judicial
scrutiny, limited perhaps only to the application of completely
erroneous principles. The burden for demonstrating the
application of completely erroneous principles is heavy as it is c
and it is heavier still if the antecedent material is prepared by
experts. The onus of discharging the heavy burden must
necessarily fall on the challenger, and 'C' company has not been
able to sustain the challenge. There can be and are differences of
opinion but cannot and will not reconsider the opinion of experts, D
particularly in matters of economic affairs or other economy
related issues unless there is extremely strong reason to do so.
!Para 106) [578-D-FI
Union of India v. Swiss Garnier Life Sciences (2013) 8
SCC 615; Secretary, Ministry of Chemicals and E
Fertilizers v. 'C' Company Ltd. 2003 (2) Suppl. SCR
177 : (2003) 7 SCC 1; Shri Sitaram Sugar Co. Ltd. v.
Union of India 1990 (1) SCR 909 : (1990) 3 SCC 223
- referred to.
3.3 The various notifications issued under Paragraph 7 of
F
the DPCO 1995 in 1999 and thereafter prescribing the norms for
conversion cost, packing charges and process loss of raw
materials (other than packing materials in conversion) and
packing and process loss of packing materials in packaging were
issued after due application of mind and based on available
material duly examined by an expert body. The notifications were G
not arbitrarily issued nor were they discriminatory in any manner
at all nor were they issued mechanically nor could it be said that
they were issued without any application of mind. [Para 108]
[579-G; 580-A-B]
4.1 On the one hand, there was virtual non-cooperation from H
530 SUPREME COURT REPORTS [2016] 7 S.C.R.

A the drug industry in providing information to the Central
Government despite repeated requests and reminders even by
expert Committees constituted for the purpose and on the other
there was a perceived statutory obligation on the Central
Government to notify the norms every year and that responsibility
could not be effectively discharged without the cooperation of
B
the drug industry. Therefore the Central Government, faced with
an extra-ordinary situation and a stalemate putting the consumers
of an essential commodity at the mercy of the drug industry, had
no option but to re~notify the existing norms in public interest on
the basis of the available material. [Para 110] [580-F-G]
c 4.2 The insistence of the drug industry to work out the
norms on the basis of the CARs was another stumbling block
staring at the face of the Central Government. The Cost Accounts
Branch of the Department of Expenditure in the Ministry of
Finance, had clearly expressed the view that the norms could
D not be effectively determined only on the basis of the CARs.
Finally, the non-cooperation of the drug industry from October
1998 onwards was another road block. The overall attitude of
the drug industry appears to be one of profit making or preserving
commercial interests, while the concern should really be of
promoting consumer interest. Faced with these competing
E interests, the Central Government sided with the consumer and
cannot be faulted for it. The Central Government did not act in a
routine or mechanical manner in re-notifying the norms every
year from 2000 onward. [Para 111) [581-B-D]
4.3 The re-notification of the prescribed norms in the period
F 2000 to 2003 was not mechanical or without any application of
mind. The materials were before the Central Government and
there was no change in the content of the materials. If there was,
the drug industry failed to effectively point it out as a result of
their non cooperative attitude. Also that re-notification of the
G prescribed norms is per se not impermissible and in the instant
case it was justified in the circumstances. [Para 112] [581-E-F]
Shri Malaprabha Coop. Sugar Factory v. Union of
India 1993 (2) Suppl. SCR 415 : (1994) 1 SCC 648 -
referred to.
H
UNION OF INDIA & ORS. v. MIS. ClPLA LTD. & ANR. 531

5.1 The norms fixed by the Central Government are of A
general application, they are not intended to benefit or harm any
particular manufacturer or formulator and indeed no manufacturer
or formulator is required to be heard (or was heard) in the
determination, they are notified in the Official Gazette for the
information of the general public and in arriving at the norms the B .,
general attributes of legislative activity are attended to by the
Central Government for the benefit of the consumers. The
notification of the norms therefore, has the character of legislative
activity. [Para 114] [583-C-D]
5.2 No submission was made to the effect that the formula
given in Paragraph 7 of the DPCO 1995 was not applied proprio
c
vigore by the Central Government. The statutory criterion for
price fixing is the formula given in Paragraph 7 of the DPCO
1995. Whether this formula has been operated as it should be is
certainly subject to judicial review. Therefore, while operating
the formula, if the Central Government did not take conversion D
cost into consideration or took into consideration some factor
not in the formula then, the Court could certainly strike down
the retail price or the ceiling price so fixed by the Central
Government on the ground that relevant factors were ignored or
irrelevant factors were taken into consideration. No such
allegation was made and no such contention was advanced by the E
'C' company. [Para 115] [582-E-F]
Prag Ice and Oil Mills and Am: v. Union of India 1978
(3) SCR 293 : (1978) 3 SCC 459; Union of India v.
Cynamide India Ltd. & Anr: 1987 (2 ) SCR 841 : (1987)
2 SCC 720; Glaxosmithkline Pharmaceuticals Ltd. v. F
Union of India 2013 (12) SCR 1120 : (2014) 2 SCC
753; Shri SitarG111 Sugar Co. Ltd. " Union of India 1990
(1) SCR 909 : (1990) 3 SCC 223; Saraswati Industrial
Syndicate Ltd. v. Union of India 1975 (1) SCR 956 :
(1974) 2 sec 630 - referred to. G
6.1 There are several reasons that can be culled out from
the Report of the Masood Committee for the Central
Government not determining and prescribing the norms in 1995
and thereafter for the next three years. It is clear that the
H
532 SUPREME COURT REPORTS [2016] 7 S.C.R.

A manufacturers/formulators were not put to any disadvantage in
the retail price fixed on the basis of the norms prescribed under
the DPCO 1987. Therefore, under these circumstances, the bona
{ides of the Central Government in not prescribing the norms
every year certainly cannot be doubted. [Paras 122,126) [586-B,
H; 587-A)
B
6.2 That apart, the provisions of Paragraph 8(5) and
Paragraph 27 of the DPCO 1995 come to the aid of the Central
Government and these provisions enabled the continuation of
the norms prescribed under Paragraph 6 of the DPCO 1987 and
saved the notifications issued under the provisions of Paragraphs
c 8 and 9 of the DPCO 1995. This 'arrangement' certainly could
not have carried on indefinitely, but the recalcitrance of the drug
industry pushed the Central Government into a corner leaving it
with little option but to continue the 'arrangement' till an
alternative was found through an in-depth study. This is perhaps
where the Central Government erred. It should have set up the
D
NPPA soon after announcing the new Drug Policy in 1994 and it
should have enacted a legislation constituting the National Drug
Authority in terms of the Drug Policy, 1994. Had these steps
been taken, the Central Government would not have to face
litigation in different parts of the country. What is tragic is that
E even today, there does not seem to be any sign of the Central
Government taking any steps to constitute a statutory National
Drug Authority. [Para 127] (587-B-D]
6.3 Although several notifications issued between 1995 and
1999 were collaterally challenged by the manufacturers/·
F formulators, the Court was not shown any notification in which
the retail price or the ceiling price was varied to their detriment.
Assuming there was such a notification, a manufacturer/formulator
was entitled to question the adverse revision by moving an
application under the provisions of Paragraph 8(4) and Paragraph
22 of the DPCO 1995. No such application was moved by any
G manufacturer/formulator. [Para 128) [587-E-F)
6.4 It is not necessary to revise the retail price or ceiling
price of every formulation every year - and if there is no such
mandate, then it must follow that there is no mandate to prescribe
the norms every year under Paragraph 7 of the DPCO just for
H the sake of it. What has to be seen by the Central Government,
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 533

in the larger context, is whether the drug industry is losing out in A
any manner and whether the consumers of formulations are being
put to any discomfort. A fine balance has to be struck and if the
Central Government has been successful in doing that, as it
appears, then carrying out an annual ceremonial procedure or
annual academic exercise of determining and prescribing the
B
norms under Paragraph 7 of the DPCO 1995 regardless of whether
there is any necessity to do so is not mandatory. [Para 129] [588-
D-F]
6.5 The Central Government cannot be compelled to
perform a legislative activity or legislative exercise that is of no
consequence and is perhaps ritualistic. While the formula given c
in Paragraph 7 of the DPCO 1995 must be mandatorily adhered
to for fixing the retail price of a formulation, the requirement of
prescribing the norms every year is discretionary and would
depend upon the exigencies of the situation - it might be every
year or less frequently or more frequently. [Para 130] [588-G-H] D
6.6 It was submitted that the principles known as Heydo11 's
mischief rule arc clearly applicable and there was a conscious
decision by the Central Government to switch over from
prescribing the norms from time to time as required under the
DPCO 1987 to fixing the norms on a yearly basis as required E
under Paragraph 7 of the DPCO 1995, and since the norms were
not fixed on a yearly basis under the DPCO 1995, the retail prices
fixed by the Central Government on the formulations on the basis
of Paragraph 7 of the DPCO 1995 were illegal and liable to be
struck down. Nothing has been told regarding the mischief, if
any, sought to be remedied. Given the scheme of the DPCO 1995 F
there was no mandate of prescribing the norms under Paragraph
7 of the said DPCO every year. [Paras 131, 132] [589-B-D]
Heydon s case [1584] EWHC Exch J 36 - referred
to.
G
7.1 It does appear that the drug industry was content with
being allowed to take the cost of packing material on actuals rather
than insisting on the Central Government issuing a notification
prescribing the norms for cost of packing material. It is believed
that in fact there was no necessity of fixing the cost of packing
material as a norm for the purposes of Paragmph 7 of the DPCO I-I
534 SUPREME COURT REPORTS [2016] 7 S.C.R.

A 1995 and that there was no fatal error in the notifications issued
under Paragraph 7 of the DPCO 1995 from 1999 onward.
Prescribing the norms every year under Paragraph 7 of the DPCO
1995 was a discretionary exercisP,. [Para 135] [590-C-D]
7.2 If the formula given in Paragraph 7 of the DPCO 1995 is
not strictly adhered to by the Central Government while working
B
out the retail price of a formulation. But if the drug industry is
itself quite content with being given the benefit of actuals in
material cost rather than having a norm fixed in that regard, then
there is no obligation to completely upset the apple cart and quash
a few dozen notifications at the behest of only a couple of
c respondents. If it is done, this Court would be acting to the
detriment of the entire drug industry (except one), but also
provide no advantage to the consumers who have already
purchased the formulations more than a decade ago and have no
hope of getting a refund on their purchase. Additionally, no public
or societal interest would be served in quashing a few dozen
D
notifications under these circumstances. [Para 136] [590-E-G]
8.1 It cannot be said that the retail price or the ceiling price
of a formulation could not have been fixed by the Central
Government without first fixing the maximum sale price under
Paragraph 3 of the DPCO 1995 of the bulk drug utilized in the
E
formulation. In the first place, there is no obligation on the Central
Government to fix the maximum sale price of every bulk drug,
whether it is in the First Schedule to the DPCO 1995 or not. In
fact, if a bulk drug is not in the First Schedule to the DPCO 1995
the Central Government is not empowered to fix its maximum
F sale price. There could also be a situation where a formulation
consists of two or more drugs, one of which is not a scheduled
drug. In that event, if the submission is accepted then it would
mean that the retail price or the ceiling price of that formulation
cannot be fixed. This is surely not the intention of the DPCO
1995 nor is it a possible manner of reading the DPCO 1995. If
G the DPCO 1995 were to be read in the suggested manner, then
every drug would have to be included in the First Schedule to
the DPCO 1995 as a pre-condition to fixing the retail price or
ceiling price of a formulation which contains that drug. This would
be doing utmost violence to the plain provisions of the DPCO
H 1995. [Para 138] [591-B-F]
UNION OF INDIA & ORS. v. MIS. CIPLA LTO. & ANR. 535

8.2 There is no inclination to take the submission that the A
ceiling price of formulations fixed under Paragraph 9 of the DPCO
1995 denied the benefit of an exemption notification dated
2.03.1995 available to small scale industries, with any degree of
seriousness particularly since it seems to suggest that the Central
Government acted with a ma/a fide intent. There is no warrant
B
for such li.n assumption and no such allegation or averment has
been made in the pleadings. The issuance of a notification under
Paragraph 9 of the DPCO 1995 is a legislative exercise of power
and to say that it was resorted to for denying the benefit of an
exemption to small scale industries can hardly be given any
credence. There is nothing in the DPCO 1995 to suggest that a c
small scale industry is kept out of the rigour of the DPCO 1995.
It is equally bound by any retail price or ceiling price fixation by
the Central Government. [Para 139] (591-G-H; 592-A-B]
8.3 The action of a repository of power is also amenable to
judicial review if it is contrary to or violates the mandatory D
requirement of a subordinate legislation. Therefore, if the Central
Go"Vcrnment does not adhere to the formula given in Paragraph
7 of the DPCO 1995 and fixes the retail price or ceiling price of
formulations without following the formula laid down, the
notification issued by the Central Government under Paragraph
8 or Paragraph 9 of the DPCO 1995 (as the case may be) is liable E
to quashed as being contrary to law. However, no instance has
been pointed out to compel the Court to use the power of judicial
review and quash the notifications under consideration. [Para 142]
(593-C-E)
V. K. Ashokan v. Assistant Excise Co111111issioner 2009 F
(4) SCR 331: (2009) 14 SCC 85; District Collector,
Chittoor v. Chittoor District Groundnut Traders
Association. 1989 (1 ) SCR 243:(1989) 2 SCC 58;
Marathwada University v. Seshrao Ba/want Rao
Chavan 1989 (2) SCR 454:(1989) 3 SCC 132; Barium G
Chemicals Ltd. v. Company law Board 1966 Supp SCR
311: State of U.P. v. Renusagar Power Co.1988 (1)
Suppl. SCR 627 : (1988) 4 SCC 59; Shri Sitaram Sugar
Co. ltd. v. Union of India 1990 (1) SCR 909:(1990) 3
sec 223 - referred to.
H
536 SUPREME COURT REPORTS [2016] 7 S.C.R.

A Associated Provincial Picture Houses Ltd. v. Wednesbury
Corporation (1948) 1 KB 223:(1947) 1 All ER 498;
Mayor & C Westminster Corporation v. London and
North Western Railway 1905 AC 426: 93 LT 143.
- referred to.
8 9.1 Form III in the Second Schedule to the DPCO 1995, is
a Form of application for approval or revision of the price of
scheduled formulations. This requires, in paragraph 13 thereof,
information relating to the break-up of the retail price of a
formulation. The submission was that an effective application
could not be made without the norms being prescribed. The norm
C for conversion cost was prescribed first by the notification dated
17.02.1989 and then by the notification dated 13.07.1999 (and
subsequent notifications). It is difficult to accept the submission
that despite these notifications a manufacturer or formulator was
unaware of the norms for conversion cost. As far as the norm for
0 packing material cost is concerned, sub-paragraph (c) provides
an option to the applicant-either the information mentioned in
paragraph 15 may be provided or the norms may be provided.
Paragraph 15 requires the applicant to provide information
pertaining to the pack, batch size (tablets I gms etc.), name of the
packing material, rate per unit, quantity required per batch and
E value of packing material/batch nos./kgs etc. (in rupees).
Therefore, even if the norm for cost of packing material is not
prescribed, the applicant can provide the requisite information
(based on actuals) for the purposes of making an effective
application for revision of the price of a scheduled formulation.
F Incidentally, the Form also confirms that no manufacturer or
formulator is placed at any disadvantage if the norm for packing
material cost is not prescribed under Paragraph 7 of the DPCO
1995 but actuals are allowed. [Para 145) [594-B-F)
9.2 If any manufacturer or formulator had taken the trouble
of preferring a revision or review application, all necessary
G
material would have been made available to the complainant for
an effective representation. None of the parties was precluded
by circumstances from preferring a revision or review for
corrective measures in relation to the retail price or ceiling price
of any particular formulation - in fact, some of them did. [Para
H 146) (595-D-E)
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 537

9.3 ln view of the availability of an alternative and efficacious A
remedy available under the DPCO 1995 read with the decision
of this Court in Cynamide India Ltd. the writ petitions filed by the
manufacturers and formulators ought not to have been
entertained by the concerned High Courts, but it is left at that.
[Para 14i] [595-F]
B
Union of India v. Cynamide India Ltd. & Anr. 1987 (2 )
SCR 841 : (1987) 2 SCC 720 - referred to.
10.1 Forum shopping takes several hues and shades and
'C' compa11y's petitions does not fall under any category of forum
shopping. The decisions referred to clearly lay down the principle
that the Court is required to adopt a functional test vis-a-vis the
c
litigation and the litigant. What has to be seen is whether there
any functional similarity in the proceedings between one Court
and another or whether there is some sort of subterfuge on the
part of a litigant. It is this functional test that would determine
whether a litigant is indulging in forum shopping or not. Keeping D
all these in mind with several other nuances and also keeping
the functional test in mind, the relief claimed by 'C' Company in
the different High Courts is examined and it is found that they
have no substantive connection whatsoever with the relief
claimed in the Allahabad High Court. [Paras 149, 157, 158) (596-
E
A-B; 598-C-D]
Rajiv Bhatia v. Govt. of NCT of Delhi and others 1999
(2) Suppl. SCR 280 : (1999) 8 SCC 525; Arathi Bandi
v. Bandi Jagadrakshaka Rao (2013) 15 SCC 790;
World Tanker Carrier Corporation v. SNP Shipping
Services Pvt. Ltd. and others 1998 (2 ) SCR 1032 : F
(1998) 5 SCC 310; Ambica Industries ii Commissioner
of Central Excise 2007 (7) SCR 685 : (2007) 6 SCC
769; Jagmohan Bahl and another v. State (NCT of Delhi)
and another 2014 (12) SCR 543 : (2014) 16 SCC 501;
Udyami Evam Khadi Gramodyog Welfare Sanstha and G
onother v. State of Uttar Pradesh and others 2007 (12)
SCR ~33:(2008) 1 SCC 560 - relied on.
10.2 Almost all the notifications under challenge in the
Karnataka High Court were also the subject matter of challenge
in the Allahabad High Court. However, 'C' Company had disclosed H
538 SUPREME COURT REPORTS [2016] 7 S.C.R.

A before the Allahabad High Court that it had filed writ petitions
before the Karnataka High Court. There was therefore, no
concealment of any facts by 'C' Company. The consequence of
allowing the three writ petitions filed by 'C' Company in the
Born bay High Court would have had an impact on the notifications
challenged in the Allahabad High Court, but that impact would
B
have been collateral and consequential. Under these
circumstances, 'C' Company ought to have disclosed the filing of
writ petitions in the Bombay High Court, but at this stage it is
not appropriate to non-suit 'C' Company only on this ground.
[Para 166] [599-B-G]
c 10.3 The proceedings in the Allahabad High Court were
initiated as a result of a show cause notice issued to 'C' Company.
No similar show cause notice and no similar factual circumstances
existed in any of the other High Courts in which 'C' Company
had initiated proceedings. It cannot, therefore, be said that 'C'
D Company had indulged in forum shopping in any manne:-
whatsoever. [Para 167] [599-G-H; 600-A]
11.1 By and large, very little or scanty material was placed
by the Union of India before the concerned High Courts,
particularly the Allahabad High Court. On the other hand, several
E volumes of docum~nts have been filed in this Court, though after
permission. Such a practice deserves discouragement and this
Court does so. There are several reasons for this. It tends to
degrade the importance of proceedings in the High Court and
could subsequently embarrass the High Court which might
inadvertently base its decision on insufficient material resulting
F in the possibility of an incorrect decision which is liable to be set
aside. It might also cause serious prejudice to a litigant because
it is for the first time in this Court that the entire material is
made available to a litigant placing him/her at a disadvantage in
dealing with issues of importance. It certainly places an
G unnecessai-y and totally avoidable burden on this Court which is
required to deal with the material as a court of first instance.
Under such circumstances this Court does not have the benefit
of the opinion of the High Court while dealing with an appeal. All
in all therefore, for the better adjudication of disputes and for the
convenience of all concerned, it would be more appropriate for
H
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 539

the Union of India, as indeed for all litig:mts to place on record all A
the material before the court of first instance, whether it is a ·
district court or a High Court. [Para 168] (600-B-E]
11.2 Certain interim orders were brought to the notice
restraining coercive action against a manufacturer/formulator
when a price notification was under challenge. It is true that such B
an interim order could have a huge impact on society. Under these
circumstances, in matters where public interest is involved, the
Court ought to be circumspect in granting any interim relief. The
consequence of an interim order might be quite serious to society
and consumers and might cause damage to public interest and
have a long term impact. It is made clear that it is not the intention c
to suggest to any Court how and in what circumstances interim
orders should or should not be passed but it is certainly the
intention to make it known to the Courts that the time has come
when it is necessary to be somewhat more circumspect while
granting an interim order in matters having financial or economic D
implications. [Paras 169, 171] [600-G; 601-E-G]
11.3 The Drug Policy, 1994 mentions that as far as the drug
industry is concerned, there are about 250 large units and about
8000 small scale units in operation. These units produce about
350 bulk drugs, and more than 2000 formulations. The Drug E
Policy, 1994 also mentions that the production of bulk drugs in
1993-94 is in the region of Rs. 1320 crores and for the same
period the product!on of formulations is in the region of Rs. 6900
crores. In other words, not only is the drug industry in the country
extremely large with heavy financial stakes but there (s lot at
stake in it not only for the industry but also for the consumers. F
For this reason, the Courts have to be extremely cautious in
interfering in any manner whatsoever with the working of the
drug industry. Any interference by the Comis would have wide
ranging repercussions not only in commercial terms but also for
the people of the country. [Para 172] (601-G-H; 602-A-B] G
Case Law Reference
2003 (2) Suppl. SCR 177 referred to Para9
2002 (3) Suppl. SCR 323 referred to Para 90
H
540 SUPREME COURT REPORTS [2016] 7 S.C.R.

A 1987 (2) SCR 841 referred to Para 92
1978 (3) SCR 293 referred to Para 95
1990 (1) SCR 909 referred to Para 96
(2013) 8 sec 615 referred to Para 104
B 2003 (2) Suppl. SCR 177 referred to Para 105
1993 (2) Suppl. SCR 415 referred to Para 109
2013 (12) SCR 1120 referred to Para 113
1975 (1) SCR 956 referred to Para 115
c 2009 (4) SCR 331 referred to Para 140
1989 (1) SCR 243 referred to Para 140
1989 (2) SCR 454 referred to Para 140
1966 Supp SCR 311 referred to Para 141
D
1988 (1) Suppl. SCR 627 referred to Para 141
1999 (2) Suppl. SCR 280 referred to Para 150
(2013) 15 sec 790 referred to Para 151
1998 (2) SCR 1032 referred to Para 152
E
2007 (7) SCR 685 referred to Para 153
2014 (12) SCR 543 referred to Para 154
2007 (12) SCR 933 referred to Para 155

F (2016) 5 sec 808 referred to Para 156
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 329 of
2005.
From the Judgment and Order dated 03 .03 .2004 of the High Court
of Judicature at Allahabad in Civil Misc. Writ Petition No. 41214 of2003
G
WITH
C. A. No. 4005 of2004
C. A. Nos. 9561-9584, 9585, 9586 and 9609-9610of2016.
Ranjit Kumar, SG., Rana Mukherjee, Parag P. Tripathi, Kapil Sibal,
H
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 541

P. Chidambaram, Soli Cooper, C.S. Vaidhyanathan, H.L. Tiku, Sr. Advs., A
Prateek Jalan, Aman Ahluwalia, Ms. Sunita Gautam, Ms. Movita Prateek,
G.S. Makkar, Abhinav Mukherjee, Rahul Kripalani, Ankit Yadav,
Shreekant N. Terdal, 8. Krishna Prasad, 8. V. 8alaram Das, Ms.
Neelima Tripathi, Shikhar Khare, Dr. Kailash Chand, D.D. Majumdar,
Ms. Mishika 8ajpai, K. V. Mohan, R.N. Karanjawala, Ms. Ruby Singh
B
Ahuja, Ms. Suman Yadav, Karan Dev Chopra, Milinda Sharma, Mrs
Manik Karanjawala (for Mis. Karanjawala & Co.), Ms. Yashmeet Kaur,
Shubhankar Sengupta, Ashok K. Mahajan, Ms. Asha Jain Madan,
Mahesh Agarwal, Ankur Saigal, E. C. Agrawala, U.A. Rana, Mrs. Mrinal
Elkar Mazumdar, Avirat Kumar (for Mis Gagrat & Co.), Shreekant N.
Terdal, Advs. for the appearing parties. c
The Judgment of the Court was delivered by
MADAN B. LOKUR, J. I. The issues that arise in this batch of
appeals are as follows:
a. Whether the notification dated J3•h July, 1999 issued by the D
Central Government under Paragraph 7 of the Drugs (Prices Control)
Order, 1995 prescribing the norms for conversion cost, packing charges
and process loss of raw materials (other than packing materials in
conversion) and packing and process loss of packing materials in
packaging was issued mechanically and without any application of mind E
or is it valid iq law?
b. Whether the notifications dated 12th July, 2000, J21h July, 200 I,
J2•h July, 2002 and I J1h July, 2003 issued by the Central Government
under Paragraph 7 of the Drugs (Prices Control) Order, 1995 re-notifying
the norms prescribed on 13th July, 1999 were issued mechanically, without
F
any application of mind and without re-determining the norms every
year as required by the Drugs (Prices Control) Order, 1995 and are
valid in law?
c. Whether various notifications issued by the Central Government
fixing the r\ltail price or ceiling price of formulations under Paragraphs 8
G
and 9 (as the case may be) of the Drugs (Prices Control) Order, 1995
without determining the norm for cost of packing material as required by
Paragraph 7 of the Drugs (Prices Control) Order, 1995 are valid in law?
d. Whether fixing the retail price of a formulation under Paragraph
8 of the Drugs (Prices Control) Order, 1995 without first fixing the sale
• H
542 SUPREME COURT REPORTS [2016] 7 S.C.R.

A price of a bulk drug under Paragraph 3 of the Drugs (Prices Control)
Order, 1995 utilized in the manufacture of a formulation is valid in law?
2. We are primarily concerned with the Drugs (Prices Control)
Order, 1995 (the DPCO 1995) and for historical reasons with the Drugs
(Prices Control) Order, 1970 (the DPCO 1970), the Drugs (Prices Control)
B Order, 1979 (the DPCO 1979) and the Drugs (Prices Control) Order,
1987 (the DPCO 1987). All these Orders were issued by the Central
Government in exercise of powers conferred by Section 3 of the Essential
CommoditiesAct, 1955.
The appeals before us
c 3. The principal appeal before us and in which the leading
submissions were made is Civil Appeal No. 329 of 2005 filed against
Cipla. This appeal is directed against the judgment and order dated 3rd
March, 2004 passed in Writ Petition (C) No.41214 of2003 by the Di vision
Bench of the Allahabad High Court.
D 4. The challenge in the writ petition was to notifications issued by
the Central Government on 12'h July, 2000, 12'h July, 2001, J2•h July,
2002 and 11th July, 2003 re-notifying the norn1s prescribed by notification
dated 13'11 July, 1999 issued under Paragraph 7 of the DPCO 1995 on
the basis of which the retail price of formulations is fixed under Paragraph
E 8 of the DPCO 1995. It was held by the High Court that these notifications
were issued mechanically and without any application of mind.
5. The consequence of the decision of the Allahabad High Court
is that about 40 notifications fixing the retail price and ceiling price of
formulations have been invalidated.
F 6. The High Court also quashed the show cause notice dated I 61h
August, 2003 issued by the Inspector of Drugs in Varanasi alleging that
Cipla had charged higher retail prices than those notified by various
notifications. In view of this allegation, the Inspector of Drugs required
Cipla to clarify whether it had any order from the National Pharniaceutical
Pricing Authority exempting it from compliance with the price
G
notifications and to give the quantities of the formulations sold during the
period 1995 till date.
7. Civil Appeal No. 4005 of2004 is directed against the judgment
and order dated 271h April, 2002 passed by the Division Bench of the
High Court of Punjab & Haryana at Chandigarh in C.W. P. No. 15677
H
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 543
[MADAN B. LOKUR, J.]

of 1999 filed by M/s Martin & Harris Laboratories Ltd. A
8. Three issues have been raised in this appeal. The first is whether
the inclusion of the bulk drug Diosmin in the First Schedule to the DPCO
1995 is valid or not. The second is whether the ceiling price fixed by the
Central Government in the notification dated 20th July, 1998 of the Diosmin
formulation was in accordance with the provisions of Paragraph 7 of the B
DPCO 1995. The third is whether the ceiling price of the Diosmin
formulation could have been fixed under Paragraph 9 of the DPCO
1995 without first fixing the maximum sale price of the bulk drug Diosmin
under Paragraph 3 of the DPCO 1995.
9. By an order dated I 5th September, 2016 we had declined to go c
into the first question. We had remanded the matter back to the High
Court to reconsider the issue in the light of the decision rendered by this
Court in Secret(lry, Ministry of Cliemic(l/s & Fertilizers, Government
of Indi" v. Ciplu Ltd & Otliers. 1

I 0. As far as the second question is concerned, it is really somewhat D
similar to the principal issue raised by Cipla, while the third question is
quite independent.
11 \ Civil Appeal No. 9585 of 2016 filed by the Union of India
arises out of judgment and order dated 6th August, 2012 passed by the
Division Bench of the High Court of Karnataka at Bangalore allowing E
Writ Petition (C) No. 6585 of 2004 filed by Jshaan Labs Pvt. Ltd. &
another.
12. The first issue raised in this appeal pertains to the validity of
the notification dated 11th July, 2003 issued by the Central Government
re-notifying the norms for conversion cost, packing and process loss F
earlier prescribed by the notification dated J 3th July, 1999. In this context,
the contention of Ishaan Labs is that the notification dated 11th July,
2003 was issued by the Central Government mechanically and without
any application of mind and that it was rightly quashed by the High
Court.
G
13. The second issue i& regarding the validity of the notification
dated 3rt1 September, 2003 fixing the ceiling price ofGlipizide formulations
under Paragraph 9 of the DPCO 1995. This is consequential to the first
issue. The contention oflshaan Labs is that the requirements of Paragraph
1 (2003) 7 sec 1 H
544 SUPREME COURT REPORTS [2016] 7 S.C.R.

A 7 of the DPCO 1995 were not adhered to and, therefore, the notification
dated 3rd September, 2003 is liable to be struck down.
14. Civil Appeal No. 9586 of 2016 and Civil Appeal Nos.
9561-9584 of 2016 arise out of a common judgment and order dated
301h October, 2012 passed by the Division Bench of the High Court of
B Kamataka at Bangalore in a batch of Writ Appeals and Writ Petitions
including those filed by Remidex Pharmaceuticals Pvt. Ltd. and Johnson
& Smith Co. & Another. By the impugned judgment and order, the High
Court effectively followed its earlier decision dated 6•h August, 2012 in
W. P. No. 6585 of2004 filed by lshaan Labs Pvt. Ltd.

c 15. The High Court dealt with and struck down the validity of
several notifications fixing the ceiling price of formulations under
Paragraph 9 of the DPCO 1995. These notifications were struck down
because they were based on notifications issued under Paragraph 7 of
the DPCO 1995 which in turn were struck down because the
requirements of Paragraph 7 of the DPCO 1995 were not adhered to.
D The correctness of this decision is before us.
16. One additional contention urged on behalf of one of the
respondents (M/s Okasa Limited) is that small scale industries were
exempted from the operation of Paragraph 8 of the DPCO 1995 (relating
to the retail price of formulations) by a notification dated znd March,
E 1995. It was submitted that fixing the ceiling price of formulations under
Paragraph 9 of the DPCO 1995 was a collateral attempt to bypass the
effect of the exemption notification dated znd March, 1995 and deny its
benefit to small scale industries.
17. Civil Appeal Nos. 9609-9610 of2016 arise out of judgment
F and order dated 16th April, 2004 passed by the High Court of Judicature,
Andhra Pradesh at Hyderabad in Writ Petitions Nos. 18507 of 1996 and
645 of 1997 filed by Dr. Reddy's Laboratories Ltd.
18. Dr. Reddy's Laboratories manufactures the bulk drug
Norfloxacin and formulations from the said bulk drug. The challenge in
G the High Court was to a notification dated !3 1h December, 1996 issued
under Paragraph 3 of the DPCO 1995 fixing the price of the bulk drug
Norfloxacin at Rs.2162/- per kilogram. However, prior to that on 271h
December, 1995 the ceiling price of formulations from the bulk drug
Norfloxacin was fixed under, Paragraph 9 of the DPCO 1995. This
notification was also challenged in the High Court. The High Court found
H
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 545
[MADAN B. LOKUR, J.]

no merit in the writ petitions and dismisse·d them. A
19. The primary submission made before us by learned counsel
appearing on behalf of Dr. Reddy's Laboratories was that the ceiling
price of the Nortloxacin formulations could not be fixed prior to fixing
the maximum sale price of the bulk drug Nortloxacin under Paragraph 3
of the DPCO 1995. It was also contended that the requirements of B
Paragraph 7 of the DPCO 1995 were not adhered to while notifying the
ceiling price DfNortloxacin formulations.
Brief b!!_ckeround
20. The core issue in this batch of appeals relates to the
interpretation and application of Paragraph 7 of the DPCO 1995 and c
Paragraphs 8 and 9 of the DPCO 1995 -the extent of flexibility available
to the Central Government in fixing the retail price and ceiling price of
formulations and the rigidity expected by the statutory Order. The specific
issue in these appeals relates to the validity of various notifications
prescribing the norms for calculating the retail price of formulations under D
Paragraph 7 of the DPCO 1995 for the purposes of Paragraphs 8 and 9
of the DPCO 1995.
21. Paragraph 7 of the DPCO 1995 reads as follows:
"7. Calculation of retail price of formulation. The retail
price of a formulation shall be calculated by the Government E
in accordance with the following fo1mula, namely, xx
R.P. = (M.C.+ C.C.+ P.M.+P.C.) x (l+MAPE/100) +ED.
Where-
"R.P." means retail price; F
"M.C." means material cost and includes the cost of
drugs and other pharmaceutical aids used including
overages, if any plus process loss thereon specified as a
norm from time to time by notification in the Official
Gazette in this behalf; G
"C.C." means conversion cost worked out in
accordance with established procedures of costing and shall
be fixed as a norm every year by notification in the Official
Gazette in this behalf;
H
546 SUPREME COURT REPORTS [2016] 7 S.C.R.

A "P.M." means cost of the packing material used in
the packing of concerned fonnulation, including process loss,
and shall be fixed as a norm every year by notification
in the Official Gazette in this behalf;
"P.C." means packing charges worked out in
B accordance with established procedures of costing and shall
be fixed as a norm every year by notification in the Official
Gazette in this behalf;
"MAPE" (Maximum Allowable Post-manufacturing
Expenses) means all costs incurred by a manufacturer from
c the stage of ex-factory cost to retailing and includes trade
margin and margin for manufacturer and it shall not exceed
one hundred per cent for indigenously manufactured
scheduled formulations;
"E.D." means excise duty;
D Provided that in the case of an impo11ed formulation,
the landed cost shall fonn the basis for fixing its price along
with such margin to cover selling and distribution expenses
including interest and importer's profit which shall not
exceed fifty per cent of the landed cost.
E Explanation.- For the purpose of this proviso, "landed
cost" means the cost of import of formulation inclusive of
customs duty and clearing charges." [Emphasis supplied]
22. A perusal of the above provision would show that for calculating
the retail price of formulations, the five determining factors are material
F cost, conversion cost, packing material cost, packing charges and
maximum allowable post-manufacturing expenses (or MAPE). During
the hearing of these appeals, there was no discussion at all about
detennination of material cost or MAPE. It must, however, be mentioned
that in one of the appeals a submission was made that the retail price of
a fonnulation could not be fixed without first determining the maximum
G
sale price ofa bulk drug in terms of Paragraph 3 of the DPCO 1995.
That apart, there was no dispute or grievance made about material cost
and MAPE. The dispute centred round fixing the norms for conversion ·
cost, packing material cost and packing charges "every year". There
was also a question raised in one of the appeals that in the absence of
H
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 547
[MADAN 8. LOKUR, J.]

the cost of packing material being fixed as a norm, the formula for fixing A
the retail price of formulations under Paragraph 7 of the DPCO 1995
. could not operate.
23. According to the Central Govemment, the norms fixed under
Paragraph 7 of the DPCO 1995 have been fixed after due application
of mind to the available materiat and despite the lack of any effective 8
cooperation from the manufacturers/formulators in disclosing information
that could have been of further assistance to the Central Government.
Additionally, according to the Central Government ifthe manufacturers/
formulators were aggrieved by the retail price and ceiling price fixed on
the basis of the norms, they had the remedy (which they did not avail) of
having them revised in accordance with the provisions of the DPCO
c
1995.
24. Before discussing the historical background leading up to the
dispute before us, it is necessary to state that there is no dispute that
earlier the norms were fixed under Paragraph 6 of the DPCO 1987 by a
notification dated 17th February, 1989 issued by the Central Government D
and later updated by another notification dated l 51h July, 1993 pursuant
to the recommendations of the Sankaran Committee. There is no
challenge to the I 989 or the I 993 norms.
25. However, it is significant that the norms prescribed by the
February 1989 notification pertained to conversion cost, packing charges E
and process loss of raw materials (other than packing materials in
conversion and packing) and process loss of packing materials in
packaging. Norms were not prescribed for cost of packing material.
Similarly the July I 993 notification prescribed nonns only for conversion
cost and packing charges. It did not prescribe any norms for process F
loss of raw materials (other than packing materials in conversion and
packing) and process loss of packing materials in packaging or for cost
of packing material.
26. Paragraph 6 of the DPCO 1987 is as follows and its contrast
with Paragraph 7 of the DPCO 1995 with reference to determination of G
norms "from time to time" and "every year" can be easily seen:
"6. Calculation of retail price of formulations. xx
The retail price of the formulation shall be calculated in
accordance with the following formula, namely:
H
548 SUPREME COURT REPORTS [2016) 7 S.C.R.

A R.P. = (M.C.+ C.C.+ P.M. + P.C.) x (I+ MAPE/100)
+E.D.
Where xx
"R.P." means retail price,

B "M.C." means material cost and includes the cost of
drugs and other pharmaceutical aids used including
overages, if any, plus process loss thereon specified as a
norm from time to time by notification in the Official
Gazette in this behalf,

c "C.C." means conversion cost worked out in
accordance with established procedures of costing and may
be fixed as a norm from time to time by notification in
the Official Gazette in this behalf,
"P.M." means cost of the packing material used in
the packing of concerned fonnulation and includes process
D
loss, as a norm fixed from time to time by notification in
the Official Gazette in this behalf,
"P.C." means packing charges worked out in
accordance with established procedures of costing and may
be fixed as a norm from time to time by notification in
E
the Official Gazette in this behalf,
"MAPE" means Maximum Allowable Post-
Manufacturing Expenses including trade margin referred
to in para. 7,
F "E.D." means excise duty:
Provided that in the case of an imported formulation,
the landed cost shall form the basis for fixing its price along
with such margin to cover selling and distribution expenses
including interest and importer's profit which shall not
G exceed 50 per cent of the landed cost.
Explanation. xx For the purposes of above proviso,
"landed cost" shall mean the cost of irnp01t of drug inclusive
of customs duty and clearing charges." [Emphasis supplied]
27. We have been informed by the learned Solicitor General that
H
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 549
[MADAN B. LOKUR, J.]

today as many as 2147 formulations are manufactured in the country. A
The number might have been less during the period that we are concerned
with, but surely the number would not have been significantly less. But
be that as it may, there can be no doubt that the Central Government is
concerned with the retail price and ceiling price of an extremely large
number of formulations. To this may be added the 'complication' of the
B
variety in which the formulations could be available. These could be in
the form of plain tablets, coated tablets, sustained release tablets (all
three categories being small, medium, large and extra large); capsules
(soft, hard and sustained release); liquids (syrup and elixirs, suspension,
emulsion and malts and paediatric drops); ointments and creams;
ampoules; sterile liquid vials; non sterile dry powder and granules; sterile c
dry powder and sterile dry powder liophylised. The packing of the
formulations could be in strips of I 0 or 15 or 20 or more or in bottles, or
tubes or vials etc. In other words, the task of fixing the retail price and
ceiling price of formulations is not only gargantuan but also extremely
complex.
D
28. lt is also important to remember that the purpose of fixing the
retail price and ceiling price of formulations is to make them affordable
and ultimately benefit the consumer of medicines. Profits earned by
manufacturers/formulators are secondary and 'profiteering' is certainly
out of the question. The preamble to the Essential Commodities Act,
1955 provides: E

"An Act to provide, in the interests of the general public, for
the control of the production, supply and distribution of, and trade
and commerce, in certain commodities." [Emphasis supplied by
us].
F
There is no dispute that "drugs" as defined in the Drugs and
Cosmetics Act, 1940 is an essential commodity in view of Section 2A
read with the Schedule to the Essential Commodities Act, 1955.
Historical background beginning with the Sankaran Committee
29. The DPCO 1987 was issued on 261h August, 1987. Soon G
thereafter, a Committee called the Sankaran Committee was set up on
2"d September, 1987 the occasion being that the norms prescribed for
conversion cost, packing charges and process loss of raw materials (other
than packing materials in conversion and packing) and process loss of
packing materials in packaging were last announced a decade ago in
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550 SUPREME COURT REPORTS [2016] 7 S.C.R.

A I 979 in accordance with the provisions of the DPCO·l 979. The Sankaran
Committee was set up for a quick revision of the norms and it was
mandated to submit its report within three months. It is important to note
that Paragraph 6 of the DPCO 1987 provided for the calculation of
retail price as per a given formula. One of the factors in the formula is
P.M. meaning "cost of the packing material used in the packing of
B
concerned formulation and includes process loss, as a norm fixed from
time to time by notification in the Official Gazette in this behalf."
Notwithstanding this, the norm for cost of packing material was not
prescribed in the notification dated J 7•h February, 1989 and no objection
was apparently raised by any manufacturer of formulations or formulator
c - at least no ol1jection was brought to our notice by anybody. In other
words, as far as the drug industry is concerned the formula given in
Paragraph 6 of the DPCO 1987 and Paragraph 7 of the DPCO 1995
could be operated without prescribing the norm for cost of packing
material.
D 30. The Sankaran Committee held its first meeting on 22 1h
September, 1987. During the course of deliberations, it sought the views
of the drug industry associations such as the Organization of
Pharmaceutical Producers of India (OPPI) and the Indian Drug
Manufacturers Association (IDMA) to enable itto satisfactorily complete
its task. The Sankaran Committee also issued a questionnaire to 23
E companies (manufacturers/formulators) soliciting some information.
Subsequently, the questionnaire was sent to another 12 such companies
since the response from the earlier set of23 companies was somewhat
lukewarm.
31. After analyzing all the material available before it, hearing the
F drug industry associations and visiting a few companies to be acquainted
with the actual conversion and production centres in the field 1 the
Sankaran Committee submitted its Report sometime in April, 1988.
32. A few observations from the Report of the Sankaran Committee
need mentioni~:
G
(i) The nonns for conversion cost, packing charges, process losses
for raw materials and packing material were originally notified sometime
in 1974 under the DPCO 1970. These norms were re-notified as
recommended by the Bureau of Industrial Costs and. Prices (for short
the BICP) on 3rd May, 1979 vide S.0. No. 259(E) under the DPCO
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[MADAN B. LOKUR, J.]

1979. These norms as notified on 3rct May, 1979 were essentially the A
same as notified in 1974.
However, with regard to the cost of packing materials, norms were
not fixed under the DPCO 1979. The Sankaran Committee observed in
this regard as follows:
"4. No norms have been fixed under DPCO 1979 for cost B
of packing material. This fluctuates and differs from product
to product. The BICP is at present guided by cost ceilings
which are reviewed periodically. These have not been
statutorily notified as norms. Calculations of these norms
are very difficult as a large number of large pack sizes are c
involved. It is therefore recommended that till such time
the norms are worked out by BICP, and these are notified,
the actuals may be allowed."
(ii) The Report noted that "While notifying the norms under the
Drugs (Prices Control) Order, 1979 the Bureau of Industrial Costs and D
Prices reviewed the earlier nonns by examining the information provided
by about 7 of the 36 manufacturers who were asked to submit data and
concluded that the norms notified in 1974 were adequate and did not call
for any revision."
In other words, the manufacturers/formulators did not provide the E
necessary information and assistance even to the BICP in its endeavour
to determine the norms for conversion costs and packing charges.
33. Faced with this situation, the Sankaran Committee took the
following view on the basis of available information:
(a) Conversion cost: The increasing cost of production and F
conversion costs have led to a situation where the existing norms cover
less than 50% of the actual costs. In the case of public sector companies
like IDPL and HAL they cover less than 30% of the actual costs.
Accordingly, it was generally recommended that conversion cost to be
increased by 100% over the existing norms.
G
(b) Packing charges: By and large, a similar view (as above)
was taken with regard to packing charges namely that the existing norms
be increased by I 00%.
(c) Process loss of raw materials and packing materials:
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552 SUPREME COURT REPORTS [2016] 7 S.C.R.

A Perhaps due to improved technological processes and efficiencies in
manufacturing techniques, the data submitted by the manufacturers
"though hesitantly" clearly indicated that the existing norms for process
loss of materials were on the higher side. Accordingly, a reduction of
I% (broadly- we are not going into specifics since it is not necessary)
was recommended in the norms for process loss on raw materials and
B
packing materials.
(d) Packing material: As mentioned above, the cost of packing
materials was not fixed under the DPCO 1979 since the cost of packing
material fluctuates frequently and also differs from product to product.
It was observed that an exercise is being undertaken by the BICP in this
c regard and until the ceiling cost of packing material is updated by the
BICP, it was recommended by the Sankaran Committee that the actuals
may be allowed.
34. Paragraphs 11 and 12 from Chapter 5 (titled Recommendations)
of the Report of the Sankaran Committee are important for appreciating
D why the cost of packing materials was not fixed. These paragraphs read
as follows:
"I I. As regards the norms for packing materials costs, the
Industry Associations (IDMA & OPP!) represented that
packing material costs vary from product to product
E depending on the nature of the product being marketed and
fixation of norms for such type of products may not be
justifiable. They, therefore, requested the Committee
to consider actual cost of packing materials.
12. The Committee notes that cost of packing material
F fluctuates frequently and also differs from product to
product. Due to this reason and the fact that fixation
of norm for this is very difficult, no norms were fixed
in 1979. No norms have been subsequently recommended
by the BICP. The current practice of the BICP is to
G regulate the claims for packing material cost on the basis
of ceiling cost for various packages as approved by Drugs
Prices Review Committee. These ceiling costs, we
understand, are reviewed periodically by the BICP. While
recommending prices of formulations, the BICP is being
guided by these ceilings. However, these have not been
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[MADAN B. LOKUR, J.]

notified as norms though statutorily required. It is A
obvious that calculation ofnorms are very difficult as large
number of pack sizes and large number of dosage forms of
different material are in the market. The Committee
recommends that the BICP be requested to up-date the
ceilings and recommend to the Department of Chemicals
B
and Petrochemicals that these may be notified as norms.
Till such time as these are communicated by the BICP, the
actuals may be allowed. It is recommended that while the
norms are notified this provision that actuals for packing
material costs are allowed till further norms are notified, be
included. This will provide for meeting the statutory c
requirements also. While allowing the actuals it will be
nc;;essary to insist on a certificate from the State Drug
Controller that a particular dosage form is being packed by
a particular material." [Emphasis supplied by us].
35. Paragraph 16 of the Report is relevant for appreciating the D
strategy for implementation of the recommendations made by the
Sankaran Committee and this reads as follows:
"16. The newly recommended norms are in Annexure VIII.
The revised norms are bound to lead to some increase in
the prices of formulations. In Annexure IX this Committee E
has tried to work out the likely impact of recommended
norms in the prices ofa few select formulations. The effect
on 37 representative formulations of various companies is
included here. The price increase ifthe entire recommended
norms are announced, varies from 0.45 percent to 4 7. 71
percent. These formulations cover almost all the dosage F
forms. In view of the substantial increase in the price ofa
few formulations, this Committee recommends that instead
of giving full increase in the norms, that is, implementing
the revised norms immediately, it is suggested that 50%
of the increased norms may be announced G
immediately. At the end of the first year, a further25%
increas" in norms may be implemented, the remaining
25% being added at the end of the second year. The
likely effect of such staggered implementation of the revised
norms shall result in increase of 0.3,!}% to 26.32 percent
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554 SUPREME COURT REPORTS [2016] 7 S.C.R.

A change in the existing prices." [Emphasis supplied by us].
36. A perusal of Annexure VIII indicates that the Sankaran
Committee recommended fixing of norms for conversion cost, packing
charges and process loss of raw materials (other than packing materials
in conversion and packing) and process loss of packing materials.
B Significantly, norms for cost of packing materials were not fixed by the
Sankaran Committee for the reasons given above and instead, it was
recommended that provision for actual cost of packing materials be
allowed, as recommended by the drug industry. The discussion in the
Sankaran Committee points to a two-fold significance - that from 1979
onwards, at least, the cost of packing material (as a nonn) had not been
c prescribed and that the drug industry was apparently quite satisfied with
the provision of actuals for packing material which could certainly not
be to the disadvantage of anybody in the drug industry.
3 7. The Central Government accepted the Report of the Sankaran
Committee and a notification was issued on I 7'h February, 1989 by which
D the norms for conversion cost, for packing charges and for process loss
ofraw materials (other than packing materials in conversion and packing)
and process loss of packing materials in packaging were notified with
effect from I" April, 1989.
38. It appears that even though the Sankaran Committee
E recommended an increase in conversion cost at 25% in the first year
(over and above an immediate increase of 50%) and at 25% in the
second year and that recommendation was accepted by the Central
Government, but it was not implemented. Apparently realizing this, in
exercise of powers conferred by Paragraph 6 of the DPCO 1987, a
F notification dated 15'11 July, 1993 was issued. By this notification, the
norms for conversion cost and for packing charges were increased by
50% in one stroke. The increase in the norms for conversion cost as
mentioned in the notification dated 15'" July, 1993 tallies with the
recommendations made by the Sankaran Committee in Annexure VIII
of its Report. However, no change was effected in the norms for process
G loss of raw materials (other than packing materials in conversion and
packing) and process loss of packing materials in packaging which
continued to be as per actuals.
39. At th is stage it may be mentioned that pursuant to the study or
exercise conducted by the l31CP, the Central Government approved the
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[MADAN B. LOKUR, J.]

ceiling price of packing material cost and made it applicable from 7'h A
July, 1994. However, this was not notified in the Official Gazette.
Drug Policy, 1994
40. The Government of India announced the new Drug Policy
which was issued on I 5'h September, 1994. Some of the relevant
paragraphs of the Policy relate to the background of the earlier Drug B
Policy ofl 986, the necessity of setting up an independent body of experts
to be called the National Pharmaceutical Pricing Authority (NPPA) to
do the work of price fixation of drugs and formulations and the
establishment of a National Drug Authority by a separate Act of
Parliament to perform a variety of specified functions. It is not necessary c
to detail the functions of the National Drug Authority except to say that
despite a l1>pse of more than 20 years the National Drug Authority has
not yet been set up.
41. Subsequent to the new Drug Policy of 1994, the DPCO 1995
was notified on 6'h January, 1995 by the Central Government and the D
NPPA was set up on 29'h August, 1997.
Masood Committee
42. Instead of taking immediate steps to set up the NPPA in terms
of the new Drug Policy, the Central Government set up a Norms Review
Committee (called the Masood Committee) on 24'h April, 1995 to review E
the norms recommended by the Sankaran Committee. The terms of
reference of the Masood Committee were as follows:
"The terms of reference of the Committee will include
review of the existing norms relating to Conversion Cost
(CC), Packing Costs (PC) and Process Losses and working F
out of norms for Packing Material (PM) and also giving
recommendations in regard to related matter such as norms
for pro-rata price fixation on the basis of ceiling prices of
formulations.
The Committee will submit its recommendations to the G
Government within a period of2 months from the date of
issue of this office memorandum."
43. During the course of submissions before us learned counsel
for Cipla was intensely critical of the Report submitted by the Masood
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556 SUPREME COURT REPORTS [2016] 7 S.C.R.

A Committee on 31" August, 1995 and, therefore, some broad details of
the contents of the Report are necessary.
44. The Masood Committee was of the view that it was necessary
to elicit the views of the drug industry before making its recommendations.
Accordingly, a meeting was held on 31" May, 1995 in which
B representatives from various drug industry associations participated. The
industry associations represented were the Indian Drug Manufacturers
Association (!OMA), the Organization of Pharmaceutical Producers of
India (OPP!), All India Small Drug Manufacturers Association
(AISDMA) and All India Small Scale Pharmaceutical Manufacturers
Association (AISSPMA). In that meeting the industry associations made
c the following demands:
(a) Ad-hoc relief based on inflation/increase in consumer
price index since 1987 should be given.
(b) Associations felt that a simplified questionnaire would
D meet the requirements to give maximum benefit in fastest
time and no detailed exercise was required.
It was suggested that Cost Audit Reports may be made use
of for broad categories of dosage form and escalations be
worked out over the existing norms.
E Additional costs on account ofGMP [Good Manufacturing
Practices] should be given.
45. Prior to the above meeting, the Masood Committee had
prepared a questionnaire for eliciting information from various companies
for the purposes of carrying out its duties. This questionnaire (referred
F to in (b) above) was discussed with the industry associations on 31"
May, 1995 when they requested for time to examine it and assured the
Masood Committee that their suggestions on the questionnaire would be
submitted latest by 81h June, 1995. However, no suggestions were
received by the Masood Committee which then issued the questionnaire
on 9/12 June, 1995 requesting the manufacturers/formulators to furnish
G
the requisite information by 30 1h June, 1995. Thereafter, some
representations were received requesting for the deletion of some
questions but this was not acceded to by the Masood Committee. It is
recorded in the Report of the Masood Committee that no unit furnished
replies to the questionnaire despite reminders and requests to the industry
H
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 557
(MADAN B. LOKUR, J.]

through the Department of Chemicals and Petrochemicals for extending A
necessary cooperation to the Masood Committee. The absence of any
response to the questionnaire was perhaps due to the demand of the
associations [demand (c) above} to make use of the Cost Audit Reports
for working out escalations over the existing norms.
46. Faced with this situation, the Masood Committee had no option B
but to examine the Report prepared by the Sankaran Committee and
also the available Cost Audit Reports (hereinafter referred to as the
CARs) for the latest years, namely, 1993-94.
47. With regard to the norms for conversion cost and packing
charges, the Masood Committee observed in Chapter 3 of its Report c
that it examined the data in respect of 16 companies which had apparently
submitted some information to the Sankaran Committee out of 35
companies to whom the questionnaire had been sent. [Earlier even the
Sankaran Committee and the BlCP did not receive full cooperation from
the drug industry]. The Masood Committee was of the view that since
the absorbed cost of conversion costs and packing charges was in the D
range of more than 50% and up to 82% for 7 out of 16 companies, the
conclusion earlier arrived at that absorption was to the extent of 50% of
the then prevailing norms appeared to be arbitrary. On an examination
of the materials before the Sankaran Committee, the conclusion arrived
at by the Masood Committee was that it was not possible to review the E
norms. The Masood Committee therefore decided to look into CA Rs of
1993-94. It was noted that the CARs were available in respect of only
6 companies and some discrepancies were noted in the information made
available in the CARs. One of the criticisms made by learned counsel
for Cipla was that the Masood Committee considered the CA Rs of only
two companies and that too for only three or four formulations and F
therefore the conclusion that costs as given in the CARs "have not been
allocated in accordance with the established Costing procedures but in
an arbitrary manner" was not justified.
48. Notwithstanding the (disputed) discrepancies, the data available
in the CARs was analyzed by the Masood Committee to determine a
whether there was an increase in the conversion cost and packing
charges keeping in mind that the Sankaran Committee had based its
conclusions on data available in 1985-86/1986-87. The analysis made
by the Masood Committee gave a mixed picture of actual costs being
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558 SUPREME COURT REPORTS [2016] 7 S.C.R.

A equal, higher or lower than the existing nonns for conversion cost with
respect to various dosage forms. The Masood Committee came to a
similar conclusion in the cost of packing charges also.
49. It was then concluded that ifthe cost allocation in the CARs
was as per established costing procedures and the norms recommended
B by the Sankaran Committee were on a realistic basis, inflation during the
period 1986-87 to 1994-95 and increase in energy and other costs should
have resulted in the actual conversion cost being higher than the existing
norms. Accordingly, the Masood Committee was of the view that the
data available in the CARs could also not be made use of.
c 50. The Masood Committee also considered other factors including
profitability situation as per the CARs, the revision of packing material
ceilings from 7'h July, 1994, a decrease in total formulation activity coming
under price control from 70% under the DPCO l 987 to 50% under the
DPCO 1995 and uniform MAPE of 100% under the DPCO 1995 as
against 75% and 100% MAPE under the DPCO 1987.
D
51. On the basis of the analysis and details available from the
Report of the Sankaran Committee and the CARs, it was concluded by
the Masood Committee that no case was made out for an increase in
conversion cost and packing charges without a proper study. The question
of an ad hoc increase also did not arise.
E
52. On the issue of process loss on raw materials and packing
materials, it may be recalled that this had actually been reduced by the
Sankaran Committee. On the basis of the CARs of the 6 companies
that were available with the Masood Committee, it was concluded that
with high production levels and better capacity utilization as well as new
F technological processes, the process loss was expected to come down.
In any event, since no infonnation was provided to the Masood Committee
through the questionnaire sent to the industry and the companies, it was
not desirable to recommend any ad hoc reduction in the existing norms.
However, the Masood Committee expressed the view that the existing
G norms for process loss on raw materials and packing materials were on
the high side.
53_. With regard to the packing material cost, as already noted
above, these were subject to ceilings as worked out and recommended
by the BICP and approved by the Central Government from time to
time. The last such approval was on 7'h July, 1994. The Masood
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[MADAN B. LOKUR, J.]

Committee decided to adopt packing material costs (without process A
loss) "as might be available from the study by Drug Cell [of the BICP]
and utilise the same for developing norms for Packing Material Cost."
54. The Masood Committee gave its conclusion in Chapter 7 of its
Report. Some of the relevant conclusions are given below (not in
seriatim): B
(i) The Sankaran Committee after estimating the CC & PC
[conversion cost and packing charges] for the industry
recommended that the differential between the estimated
CC and PC and the then existing [norms?], be given in
phases. It imp lied that the industry got the assessed CC & c
PC for 1986-87 in July 1993 when the third and final
increase was allowed. In other words, the industry should
have suffered losses on a continuing basis at increasing
levels i.e. years subsequent to 1986-87, on two counts (a)
assessed CC & PC fc,r 1986-87 was not allowed to be
absorbed fully and (b) due to impact of general inflation D
subsequent to 1986-87.
(ii) The Committee has also examined the actual CC & PC
as given in the Cost Audit Reports of six companies with a
view to develop norms for the same as suggested by
Industry Associations. Analysis of the data did not reveal E
any logical correlation of cost elements over a large range
of products. Discrepancies and anomalies observed in the
data have already been described in Chapter 3.
(iii) Non-response to the questionnaire by industry and their
insistence that no detailed exercise should be undertaken F
by the Committee further lends support to the conclusion
arrived at by the Committee that the possible cushion in the
existing norms and in other inputs more than offsets the
inflation during the period l 986-87 to l 994-95. The
Committee, therefore, recommends that no further G
escalation should be given till replies to the Questionnaire
are received and an in-depth analysis done by an Expert
Group to assess the escalation/de-escalation required in the
existing norms of not only CC, PC and PL (both for raw
materials & packing materials) but also overages.
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560 SUPREME COURT REPORTS [2016] 7 S.C.R.

A (iv) The other terms of reference ...... have been dealt
with in Chapters 5 and 6. Based on the information furnished
by the industry in response to the questionnaire earlier issued
by the BICP, nonns for packing material (with process loss)
only could be worked out.
B 55. The recommendations made by the Masood Committee in
connection with the terms of reference were given in Chapter 8 of the
Report and the relevant recommendations are:
(i) On the basis of analysis described in relevant chapters,
the revision of existing norms for CC, PC and PL in
c accordance with established procedures of costing cannot
be done without evaluation of the latest data. Taking into
account all the relevant factors, the Committee is firmly of
the view that there is no case for any increase in the
present norms without study. Consequently, the question
of an ad-hoc increase, does not exist at all.
D
(ii) Norms for packing material costs (without process
loss) have been worked out as given in Annex. 5.3
Implementation of these norms in isolation is not
recommended keeping in view the overall profitability
scenario of the industry.
E
(iii)xxxxx
(iv) (a) In-depth study in regard to CC, PC, PL and
also overages is necessary for revision of existing norms/
ceilings on a scientific basis and in accordance with the
F established procedures of costing.
(b) Para 7 of DPCO, 1995 stipulates yearly revision of
norms for CC, PC, PM and PL and does not provide for
any ad-hoc increases. This calls for developing indices
based on in-depth study and effecting revision of all
0 the norms simultaneously every year.
(c) xxxxx [Emphasis supplied by us]
56. It will be seen from a reading of the Report of the Masood
Committee that the industry was not at all inclined to furnish information
to the Masood Committee and the exercise which it was tasked to perform
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[MADAN B. LOKUR, J.]

could be carried out only on the basis of the Report of the Sankaran A
Committee and the CARs of 6 companies. According. to the Masood
Committee this material was clearly inadequate to arrive at any definite
conclusion, necessitating the recommendation of setting up an Expert
Group to complete the task. Apart from a criticism of the Report, the
submission made by learned counsel for Cipla was that all the information
B
required by the Masood Committee was available in the CARs which
were with some Ministry or the other of the Central Government, ifnot
with the Ministry of Industry or the Department of Company Affairs.
All the CARs could easily be requisitioned by the Masood Committee to
fix the norms and this was possible even ifthe industry did not co-operate
with the Masood Committee, more particularly since price fixing is a c
legislative exercise required to be carried out independently.
57. However, the Masood Committee determined the norms for
cost of packing material (without process loss) and these norms were
mentioned in Annexure 5.3 of the Report of the Masood Committee' but
the Central Government decided not to prescribe the norms for cost of D
packing material and accepted the view of the Masood Committee that
prescribing the norms for cost of packing material in isolation (and without
process loss) wou Id not serve any purpose.
Jharwal Committee
58. After the Report of the Masood Committee was ·submitted on E
31" August, 1995 it appears that there was little or no activity from the
side of the Central Government or from the side of the industry in respect
of fixing the norms "every year" under the DPCO 1995. Our attention
has been drawn to an unspecified "demand" made perhaps sometime in
early 1997 for a revision in the norms in the cost of packing material. F
This was brought out in an official file noting dated 2'id April, 1997 followed
by another official file noting of the same date suggesting acceptance of
the Report of the Masood Committee, including the recommendation
that the norms for cost of packing material (without process loss) could
not be implemented in isolation. Jt also appears from the official file
notings placed before us by the learned Solicitor General that the G
constitution of the NPPA was expected and one of the suggestions put
forth in the official file notings was to await the constitution and functioning
of the NPPA and authorize it to conduct a thorough study of the type
recommended by the Masood Committee.
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562 SUPREME COURT REPORTS [2016] 7 S.C.R.

A 59. The NPPA was eventually constituted on 29th August, 1997.
We are not aware of the activities of the NPPA thereafter except that a
meeting was held on 27th January, 1998 by the NPPA with representatives
of IDMA and OPPI where there was a discussion for the need to revise
the norms of conversion cost and packing charges. This was followed
by a letter dated 27th April. 1998 sent by the industry indicating that the
B
existing norms were based on the data available in 1988 which had
become outdated and obsolete and since then there had been a significant
increase in the cost of various items that go into the calculation of these
norms.
60. Apparently as a result of the dialogue and correspondence
c between the NPPA and the industry, a Committee called tlie Jharwal
Committee was set up on 8th October, 1998. It may be noted that Dr.
Jharwal was the Member Secretary of the NPPA. In its Report
submitted on 5'" April, 1999 the Jharwal Committee noted that the
packing material cost ceiling had been revised on 7•h July, 1994 by the
D BICP and thereafter it was revised by the NPPA in February 1998 (again
with no objection from the drug industry). Consequently, the only issue
addressed by the Jharwal Committee was the fixing of norms for
conversion cost, for packing charges and for process Joss.
61. The Jharwal Committee had earlier prepared a draft
E questionnaire (as was done by the Sankaran Committee and the Masood
Committee) sometime in October 1998 and circulated it to the industry
so that suggestions could be made for appropriate modifications in the
questionnaire. The Jharwal Committee met on 28th November, .1998 and
finalized the questionnaire in the absence of an adequate response from
the industry. In the next meeting held on ! 2•h December, 1998 the
F industry expressed its inability to furnish the data in respect of the installed
capacity of the companies.
62. Be that as it may, the information required in terms of the
questionnaire prepared by the Jharwal Committee was not at all
forthcoming from the industry. Faced with these difficulties and in the
G absence of cooperation from the industry, the Jharwal Committee
considered the suggestion of the Department of Chemicals and
Petrochemicals for a partial increase in the existing norms of conversion
cost and pack!_ng charges based on the inflation factors and till a full-
fledged cost study is finalized. Acting upon this suggestion the Jharwal
Committee considered several factors as mentioned in its Report as
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[MADAN B. LOKUR, J.]

well as the wholesale price index and other relevant factors and felt that A
it would be adequate and reasonable to compensate for the assessed
increase in conversion cost and packing charges only to the extent of
50% of the inflation factor which worked out to 4.5%. This was criticized
by learned counsel for Cipla as being totally unrealistic.
63. As already mentioned above since the packing material cost B
had already been revised in February 1998 (after July 1994) no
recommendation was made by the Jharwal Committee in this regard.
As regards process loss the Jharwal Committee felt that there was no
appropriate measure available to suggest any ad hoc revision in the
absence of factual data and it was suggested that the process loss may
be re-notified at the existing level till revised on the basis of a fresh
c
study already in progress through the NPPA.
64. One important observation made by the Jharwal Committee in
its Report relating to the non-cooperation of the industry and its suggestion
to defer a detailed study is required to be quoted. This reads as follows:
D
"It would also be pertinent to mention that though the
Industry Associations (OPPI and IDMA) were impressed
upon the need to advise their member companies to furnish
the required data to NPPA as early as in October, 1998,
there has been a luke-warm response and indifference on
their part in furnishing the data. They have even suggested E
NPPA to defer the detailed study, which is already in
progress. NPPA is continuing its effort to complete the
study and accordingly sent couple of reminders to the
manufacturers, advising them to submit the data
expeditiously. However, the response so far has been far F
from satisfactory."
65. The conclusions of the Jharwal Committee were to the effect
that the existing norms of conversion cost and packing charges may be
revised by giving an ad hoc increase of only 4.5% in each as an interim
measure; there is no need to revise the said norms on an ad-hoc basis G
beyond 4.5% unless warranted by the outcome of a detailed study already
in progress; ifthe industry does not furnish the required data the same
norms may be re-notified every year to meet the requirements of the
DPCO 1995 and the norms for process loss may be re-notified at the
existing level till revised on the basis of the fresh study already in progress.
H
564 SUPREME COURT REPORTS [2016) 7 S.C.R.

A 66. The Report of the Jharw'al Committee and its acceptance by
the Central Government led to the issuance of a notification S.0. 578
(E) dated 13m July, 1999 under Paragraph 7 of the DPCO 1995. Through
this notification fresh norms were prescribed for conversion cost, packing
charges and process loss of raw materials (other than packing materials
in conversion) and packing and process loss of packing materials in
B
packaging for the purposes of Paragraph 7 of the DPCO 1995. Norms
for cost of packing material were not prescribed, apparently since this
was permitted on actuals.
Review of the three Reports
c 67. A review of the Report of the Sankaran Committee, the Report
of the Masood Committee and the Report of the Jharwal Committee
bring out the following salient points:
a) The drug industry was unwilling to extend its full cooperation
in furnishing data required by the Central Government for
D prescribing the nonns as required by the DPCO 1987 and
the DPCO 1995. One of the possible explanations for this
reluctance put forth by learned counsel for Cipla (it was
clarified that Cipla was not a member of any drug industry
association after a particular point of time) that the members
of the drug industry might not have been willing to part with
E confidential infonnation which could be used by competitors.
b) Faced with the reluctance of the drug industry to part with
necessary data the Central Government had no option but
to carry out its exercise of prescribing norms in terms of
Paragraph 6 of the DPCO 1987 and Paragraph 7 of the
F DPCO 1995 for conversion cost, packing charges and
process loss ofraw materials (other than packing materials
in conversion) and packing and process loss of packing
materials in packaging. This might have involved some
element of ad hoc decision making and guess-work but that
G was necessitated by the circumstances confronting the
expert bodies set up by Central Government.
c) The norms prescribed by the Sankaran Committee appeared
to be adequate and actually provided a cushion but required
a little tweaking at a later stage due to a variety of factors,
including inflation. There does appear to be general
H
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 565
[MADAN B. LOKUR, J.]

acceptance by the drug industry of the norms prescribed A
pursuant to the Report of the Sankaran Committee. Similarly,
there does appear to be general acceptance of the ad hoc
measures taken post the Masood Committee and eventually
the notification issued by the Central Government pursuant
to the Report of the Jharwal Committee in respect of
B
conv,~rsion cost, packing charges and process loss.

d) The issue of packing material cost was separately addressed
by the Central Government through the BICP and also
through decisions taken on 7'h July, 1994 and February 1998.
The norms for the cost of packing material were not
prescribed or notified in the Official Gazette. However, the
c
drug industry was entitled to work out the cost of packing
material on actuals, and it seemed quite satisfied with the
result given that the ceiling was fixed in July 1994 and
February 1998.
68. Norms were not prescribed "every year" as required by D
Paragraph 7 of the DPCO 1995 particularly for the years 1995-1996,
1996-1997, 1997-1998 and 1998-1999. We were informed thatthe ''year"
is from July to June of the following year. The learned Solicitor General
sought to justify the absence of prescribing the norms "every year" as
required by Paragraph 7 of the DPCO 1995 for the four years mentioned E
above. We will be dealing with the submissions in this regard at a later
stage.
Exercise for subsequent years
69. Post the notification dated lJ'h July, 1999 the next stage for
the Central Government was to notify the norms for 2000-2001. This F
exercise appears to have been initiated with reference to the norms for
the cost of packing material through a letter dated 61h October, 1999
issued by the NPPA to IDMA and similar letters to other associations.
What is on record before us is the reply by OPP! to the NPPA of I l'h
January, 2000 to the effect that a meaningful response could be given if G
the existing norms for packing material costs were made available and
some clarity brought regarding the basis for the ceiling fixed. This letter
was viewed by the NPPA as yet another delaying tactic in providing the
requisite information. Apparently realizing this, OPP! addressed a letter
to the NPPA on 9 1h March, 2000 to the effect that an "independent
H
566 SUPREME COURT REPORTS [2016] 7 S.C.R.

A professional consultant" had been assigned the task "to facilitate
expeditious compilation of the requisite data" to assist in the development
of norms for cost for packing materials. Although it is not clear from the
record, but it does appear that the data compiled (if any) by the
independent professional consultant engaged by OPP! was not furnished
to the NPPA.
B
70. Quite independently, a dialogue was initiated by the NPPA
with the drug industry with regard to fixing the norms for conversion
cost and for packing charges. It appears that the drug industry
associations had engaged an independent consultant in this regard and a
two page report given by the consultant was submitted to the NPPA by
c a letter dated 2"d March, 2000 by the associations.
71. We have seen the report and it is clearly inadequate. It was
pointed out by the NPPA in a letter dated 23'd March, 2000 that no
justification had been given in the report for the rise in the industrial
average in respect of conversion cost and packing charges nor had any
D indication been given as to.how the industrial average had been worked
out as also the source of information.
72. No further material has been brought to our notice with regard
to fixing the norms for the year 2000-200 I in terms of Paragraph 7 of
the DPCO 1995.
E
73. As on earlier occasions and in the absence of any further
information or data with the NPPA or the Central Government, a decision
was taken towards the end of June, 2000 to notify the existing norms for
2000-200 I without allowing for any change from the norms prescribed
on J3'h July, 1999. Accordingly, a notification being S.O. 660(E) dated
F 12•h July, 2000 was issued and gazetted.
74. Similarly, for 2001-2002 what is placed before us by the Union
of India is a two page official noting dated 9'h July, 200 I referring to the ·
Report of the Jharwal Cornmittee. The official file noting further records
that despite requests by the NPPA to IDMA and OPP! requisite
G information was not forthcoming from October, 1998 onward. A
reference was made to the letter dated 23'd March, 2000 and that no
response to it had been received. In view of this, it was proposed (and
that proposal was accepted) that the same norms as were prescribed on
J3•h July, 1999 may be re-notified as the norms for 2001-2002. There is
H
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 567
[MADAN B. LOKUR, J.]

no dispute that a gazette notification dated 12'h July, 200 I was issued in A
terms of the decision taken.
75. The stalemate continued even thereafter for the next two years
2002-2003 and 2003-2004 with the NPPA and the Central Government
insisting on a response to the questionnaires sent for collecting data for
fixing the nonns under Paragraph 7 of the DPCO 1995 and the reluctance B
of the associations to supply the data. This resulted in the nonns prescribed
by the notification dated l 31hJuly, 1999 being re-notified for 2002-2003
by a notification dated 12•h July, 2002 and for the year 2003-2004 by a
notification dated 11 •h July, 2003. We do not think it necessary to detail
the correspondence between the Central Government and the drug
industry except to say that the non-cooperation and dilly-dallying by the c
industry in providing necessary infonnation and data continued throughout
th is period.
76. There were, however, three significant and distinguishing
features during this period. The first was that the Central Government
decided to take the services of and involve the Cost Accounts Branch of D
the Department of Expenditure in the Ministry of Finance to undertake
a study for the development of norms for conversion cost, packing
charges, and process loss. However, nothing substantive came out of
this exercise by the Cost Accounts Branch. The second significant
development was an unambiguous decision of the drug industry that the E
information required by the NPPA or the Central Government was
already available in the Cost Audit Reports (CARs) of the various
companies. The third was the clear view of the drug industry to not
cooperate at all with the Central Government in the exercise of reviewing
the norms for conversion cost, packing charges and process loss.
F
77. The Indian Pharmaceutical Association wrote to the N PPA on
9•h March, 2002 to the effect that its Executive Council in a meeting held
on s•h March, 2002 expressed its inability to participate in the exercise
for a study to review the norms for conversion cost, packing charges
and process loss.
G
78. Similarly, IDMA communicated to the Cost Accounts Branch
on I O•h July, 2003 that its Executive Committee had passed the following
resolution:
"All the major pharmaceutical companies are covered by
cost records and cost audit. Hence a cost audit report duly
H
568 SUPREME COURT REPORTS [2016] 7 S.C.R.

A audited by a practicing cost accountant is submitted by these
companies to the cost audit branch, Department of
Company Affairs, New Delhi. NPPA should be requested
to use these readily available audited cost audit reports, for
the purpose ofrevision of CC/PC norms, instead of asking
the companies to again send the cost data in separate
B
formats which will be voluminous and time consuming for
the industry."
79. The Taxation and Pricing Policy Committee of OPP!, addressed
a letter dated 22nd July, 2003 to the Cost Accounts Branch to the effect
that the representatives of OPP! and IDMA had suggested in a meeting
c held on 51h July, 2002 with the NPPA that a study of the conversion cost
and packing charges should be based on the CARs already available
with the Central Government and that the study should be conducted on
that basis.
80. The Cost Accounts Branch informed OPP! by a letter dated
D 2nd September, 2003 that a study based "entirely on the information
available in the cost audit reports might result in the Government not
obtaining a total picture of the actual conversion cost, packing charges
and process loss in the drug formulation industry. Our aim, when we
requested the industry for making available the cost data and other
E information vide our questionnaire, was to take into account the actual
cost implications of all the factors in the drug industry and not restrict it
to only those where the cost audit report is available." It was added that
despite the availability of the CARs "i~ was considered appropriate to
frame the questionnaire for seeking the company specific information/
data relevant to the study under reference. The questionnaire was
F circulated to the pharmaceutical units with the purpose of safeguarding
the interest of industry and taking them into confidence to develop the
realistic CC, PC and PL norms based on the actual cost data/information
available with the formulation companies."
81. It will be seen from the above that as far as the drug industry
G was concerned, the CA Rs could form the basis for prescribing the nonns
as required by Paragraph 7 of the DPCO 1995. On the other hand, the
Masood Committee had concluded that the data provided through the
CA Rs was not entirely reliable. That apart, to obtain an overall picture
of the ground realities, the NPPA, the Central Government and the Cost
H Accounts Branch felt that the information called for through the
! 'NION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 569
[MADAN 8. LOKUR, J.]

questionnaires would be more comprehensive and beneficial rather than A
the CARs of a handful of manufacturers/formulators.
82. On the basis of the above material, the submission of the teamed
Solicitor General was that the drug industl)' did not extend the necessal)'
cooperatior expected of it, that the notifications issued by the Central
Government pfescribing the norms for conversion cost, packing charges 8
and process loss were not mechanically issued but were issued after
due application of mind to the available material and that the decisions
taken by the Central Government were subject to revision under the
provisions of~he DPCO 1995 but the manufacturers/formulators did not
take recourse to these pmvisions and instead approached the Courts
after much delay and by way of an after-thought. These submissions
c
were refuted by the learned counsel appearing for Cipla and other
manufacturers/formulators.
Judicial review
83. The primal)' issues before us relate to (i) the legitimacy and D
soundness of the materials on the basis of which the norms were
prescribed for application of the formula given in Paragraph Tof the
DPCO 1995 and on the basis of which the retail price and ceiling price
of formulations were fixed under Paragraphs 8 and 9 of the DPCO
1995; (ii) the effect of the failure ofthe Central Government to prescribe
the norms under Paragraph 7 of the DPCO 1995 on a yearly basis, and E
(iii) the effect of the failure of the Central Government to prescribe the
norms for cost of packing material under Paragraph 7 of the DPCO
1995. The issue before us does not relate to the actual norms or actually
fixing the retail price or ceiling price of formulations under Paragraphs 8
and 9 of the DPCO 1995 in the sense that there is no dispute that forthe F
purposes of fixing the retail price or ceiling price of formulations under
Paragraphs 8 and 9 of the DPCO 1995 the norms were prescribed and
the formula given in Paragraph 7 thereof was adhered to. Even otherwise,
the actual norms and price fixing on the basis of the nonns is out of
bounds for us.
G
(i) Issue of non-application of mind
84. The first submission oflearned counsel forCipla relates to the
materials and the non-application of mind resulting in the Central
Government prescribing the norms under Paragraph 7 of the DPCO
1995. The challenge to the retail price and ceiling price of formulations
H
570 SUPREME COURT REPORTS (2016] 7 S.C.R.

A fixed through various notifications is only collateral or consequential. In
its impugned judgment and order the Allahabad High Court held that
there was no application of mind by the Central Government in prescribing
the norms for conversion cost, packing charges and process loss. The
second conclusion is that the Central Government failed to adhere to the
provisions of Paragraph 7 of the DPCO 1995 in not prescribing the
B
norms on a yearly basis.
85. Although there is no direct challenge to the notification dated
lJ•h July, 1999 prescribing the norms under Paragraph 7 of the DPCO
1995 it was submitted that that notification and subsequent notifications
were issued without any application of mind. It was in this context that
c it had become necessary to make a detailed reference to the Reports of
the Sankaran Committee, the Masood Committee, the Jharwal
Committee, the file notings and correspondence which were the materials
before the Central Government and which led to the issuance of the
notifications prescribing the norms for conversion cost, packing charges
D and process loss.
86. Paragraph 7 of the DPCO 1995 consists of two parts -
prescribing the norms and applying those prescribed nonns to the formula
for arriving at the retail price of a formulation. In the first instance, we
are concerned with prescribing the norms under Paragraph 7 of the
E DPCO 1995 on the basis of the recommendations of the Masood
Committee and the Jharwal Committee sine<: it was contended that there
was no application of mind in doing so. It may be mentioned thatthere is
no challenge to the norms prescribed as such v.: the ground of
arbitrariness or being ultra vires the DPCO 1995 or the Essential
Commodities Act, 1955. What is presently questioned is only the
F application of mind and the soundness of the materials on the basis of
which the norms were prescribed, namely, the Masood Committee Report
and the Jharwal Committee Report. Learned counsel had no criticism of
the Sankaran Committee Report and indeed generally supported its
conclusions and recommendations.
G 87. A perusal of the Report of the Masood Committee and
subsequently the Report of the Jharwal Committee clearly brings out
that the Central Government initiated a detailed exercise for prescribing
the norms but unfortunately the drug industry did not extend its full
cooperation in the exercise and declined to provide necessary information
H
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 571
[MADAN B. LOKUR, J.]

and data despite requests and reminders. Therefore, the Central A
Government was left with no alternative but to notify the norms in
compliance with the provisions of the DPCO 1995 on the basis of the
materials already available. The first question is, could the Central
Governm"'llt rely on these materials?
88. The Report of the Masood Committee was roundly criticized B
by learned counsel for Cipla since its exercise was hasty and carried out
without any field visits and without considering ground realities. The
Report of the Jharwal Committee was also strongly criticized by learned
counsel. The general line of criticism was that the Reports of the Masood
Committee and the Jharwal Committee were based on flawed reasoning
and an incorrect appreciation of the data and facts. As far as the Report
c
of the iVlasood Committee is concerned, it was also criticized for not
recommending the norms- a task it was set up to perform. The Masood
Committee merely passed on the buck to another expert body for
conducting an in-depth study for recommending the nonns for conversion
cost and packing charges. However, it must be said that the Masood D
Committee did some useful work by recommending the norms for cost
of packing material but that could not be acted upon by the Central
Government in isolation and in the absence of norms on process loss. A
significant observation of the Masood Committee related to the stipulation
for a yearly notification of norms in terms of the DPCO 1995. The
Report of the Jharwal Committee was criticized for taking, amongst E
others, an unrealistic view of the inflation factor and not really adding
anything of value to the Report of the Sankaran Committee.
89. There is no doubt that the Masood Committee Report was the
justification for the Central Government not revising the norms
recommended by the Sankaran Committee and the Report of the Jharwal F
Committee was the basis for revising the norms as notified on 1J'h July.
1999. These Reports were the antecedent material available with the
Central Government for the purposes of Paragraph 7 of the DPCO
1995. Can this "antecedent material" be subject to judicial review or
judicial scrutiny and if so to whot extent? G
90. The "..:teria for price fixing can be statutory or non-statutory
(such as a Report). This distinction was brought out in R"ylllltseemlt
Paper Mills Ltd. v. Government ofA.P. 1 • In that decision, a committee
of officials was appointed to consider the factors relating to fixing the
'(2003) 1 sec 341 H
572 SUPREME COURT REPORTS [2016] 7 S.C.R.

A rates of royalty on the forest produce to be supplied to wood-based
industries on a sustained basis, and to make recommendations to the
Government. The committee made its recommendations which were
accepted by the State Government and an appropriate G.O.Ms was
issued. The result of the G.O.Ms was that the royalty for bamboo went
up considerably and continued to rise every year. The G.O.Ms was then
B
challenged in a writ petition.
91. The submission made by the appellants in that case was that
even though "price fixation is neither the function nor the forte of the
court, it is neither concerned with the policy nor the rates. But the court
cannot deny to itself the jurisdiction to enquire into the question, in
c appropriate proceedings, whether relevant considerations have gone in
and irrelevant considerations kept out of the determination of the price."
92. In that context and in response to the submission made, this
Court drew a distinction between price fixation governed by statutory
considerations and price fixation governed by non-statutory
D considerations. It was held that on this basis Union ofbu/ill v. Cy11<1mitle
Indi<1 Ltd. & Allf. 3 was distinguishable since it dealt with price fixation
based on statutory considerations. In a case of price fixation having its
origin on non-statutory materials the scope ofjudicial scrutiny would be
far less. It was said in paragraph 15 of the Report as follows:
E "This Court was examining [in Cy1w111ide flu/ill] the scope
ofjudicial scrutiny in the matters of price fixation where it
was governed by statutory provisions. The scoµ~ ofjudicial
scrutiny would be far less where the price fixatiou is not
governed by the statute or a statutory order. Where the
F legislature has prescribed the factors which should
be taken into consideration and which should guide
the determination of price, the courts would examine
whether the c~msiderations for fixing the price
mentioned in the statute or the statutory order have
been kept in mind while fixing the price and whether
G these factors have guided the determination. The
courts would not go beyond that point. In the present
appeals, there is no law, or any statutory provision laying
down the criteria or the principles which must be followed,
or which must guide the determination of rates of royalty.
H ' <1987) 2 sec no
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 573
[MADAN B. LOKUR, J.]

No doubt, any arbitrary action taken by the State would be A
subject to scrutiny by the courts because arbitrariness is
the very antithesis of rule of law. But this does not mean
that this Court would act as an Appellate Authority over
the determination ofrates ofroyalty by the Government. ....
It is open to the Government to fix such price as it thinks
B
appropriate having regard to public interest, which inter alia,
may include interest of revenue, environmental, ecology,
the need of mi II s and the requirements of other consumers.
The price is not to be fixed keeping in mind the requirements
of the mills alone." [Emphasis supplied].
93. Jn these appeals, we too are presently concerned with a stage
c
anterior to actual price fixation namely recommending and prescribing
the norms that would eventually form the basis for fixing the retail price
and ceiling price of formulations. The view expressed in R"ylllllseenw
Pllper Mills would, in our opinion, apply to the Reports of the Masood
Committee and the Jharwal C0mmittee set up by the Central Government D
for recommending the norms for the purposes of Paragraph .7 of the
DPCO 1995. The Reports were antecedent materials, non-statutory and
recommendatory and could have been rejected by the Central
Government. The Masood Committee did not (and perhaps could not)
recommend any norms for conversion cost, packing charges and process
E
loss, except for cost of packing material (without process loss). The
Masood Committee was alive to the statutory requirement of prescribing
the norms on a yearly basis and therefore referred to it.
94. However, as far as the Report of the Jharwal Committee is
concerned, the Central Government accepted and implemented it by
issuing a notification on I 31h July, 1999 under Paragraph 7 of the DPCO F
1995 - but still did not prescribe the norms for cost of packing material
recommended by the Masood Committee, an issue that will be considered
later. ·
95. While learned counsel for Cipla might have serious differences
of opinion with the recommendations of these particular non-statutory G
Reports, generally a challenge to Reports prepared by expert bodies is
not easy but is subject to lesser judicial scrutiny. To rephrase what was
said in Prllg Ice mu/ Oil Mills mu/ A11r. v. U11io11 of /11dill' a factor
here or a factor there that should have been taken into account but has
'(1978) 3 sec 459 H
574 SUPREME COURT REPORTS [2016] 7 S.C.R.

A been ignored should not invalidate the Reports - mere errors in the Reports
are not subject to judicial review.
96. That there can be a legitimate difference of opinion (sometimes
serious) between two expert bodies is not at all unusual. In Sllrl Sltftram
Sugar Co. Lttl. v. Union of I11ditt 1 the decision of the Central
B Government was supported by the recommendations of the Tariff
Commission. These recommendations were criticized in some respects
by the BICP. Some members of the sugar industry accepted the views
of the Central Government while some did not. Considering the overall
circumstances, the Constitution Bench observed that the conclusions of
the Central Government are expert conclusions which were not shown
c to be arbitrary, discriminatory, unreasonable or ultra vires. Reliance was
placed upon the following passage from Rllilrolld Commission of Texlls
v. Rowan & Nie/tots Oil Company6 :
"Nothing in the Constitution warrants a rejection of these
expert conclusions. Nor, on the basis of intrinsic skills and
D equipment, are the federal courts qualified to set their
independent judgment on such matters against that of the
chosen State authorities.... When we consider the limiting
conditions of litigation - the adaptability of the judicial
process only to issues definitely circumscribed and
E susceptible of being judged by the techniques and criteria
within the special competence oflawyers- it is clear that
the Due Process Clause does not require the feel of the
expert to the supplanted by an independent view ofjudges
on the conflicting testimony and prophecies and impressions
of expert witnesses".
F
This observation is of even greater significance in the
absence of a Due Process Clause."
97. The feel of the expert is important, if not conclusive. Insofar
as we are concerned, two expert Committees made their
G recommendations. These recommendations were then examined and
considered by the Central Government and on the basis of the expert
conclusions arrived at, the nonns were prescribed by a notification dated
J3th July, 1999 issued under Paragraph 7 of the DPCO 1995. Under the
circumstances, the question of judicial scrutiny of the Reports of the
'(1990) 3 sec 223
H '311US570, 85 L Ed 358, 362
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 575
[MADAN B. LOKUR, J.)

Masood Committee and the Jharwal Committee and the acceptance of A
their recommendations by the Central Government is not only limited,
but in this case it does not arise. It cannot be said that the notification
dated lJ•h July, 1999 was based on no material or was issued without
any application of mind. Learned counsel for Cipla may disagree with
the contents of the materials, but cannot ignore their existence or that
B
they were considered by the Central Government.
98. Fixing the price of any commodity is not only difficult but also
tricky. There is material to be considered; a bundle of factors to be
considered and appropriate weight is to be given to the material and the
factors. This is not easy to decide and there will always be some criticism
with regard to either the material utilized or the factors considered or the c
weight attached to the materials and factors. In matters pertaining to
drug formulations, it is not only an issue of demand and supply but also
the ability of a common person to afford the formulation. At the same
time, the manufacturer must also make some profit and be in a position
to invest in research and development. There simply cannot be any D
mathematical precision in fixing the price of a commodity. More than
enough elbow room or a play in the joints is required to be given in such
matters- and even then the price fixing authority may commit an error.
Once this is appreciated, it wil 1be realized that the task before the Central
Government in prescribing the norms was not easy.
E
Failure to consider the cost audit reports
99. Learned counsel for Cipla contended that assuming the drug
industry did not extend any cooperation in providing necessary data, the
CARs were nevertheless material available and they could be and should
have been made use of for recommending the norms by the Masood F
Committee and the Jharwal Committee to the Central Government. In
other words, relevant material was not considered.
I00. The value or utility of the CARs has already been mentioned
above, which is that the Masood Committee did not find the information
contained in whatever CARs were available to. be fully reliable. This G
view was accepted by the Central Government. Even the Cost Accounts
Branch of the Department of Expenditure in the Ministry of Finance did
not find the CA Rs of particular use for the purposes of prescribing the
norms. Additionally, no study could be based entirely on the CARs. We
must accept the opinion of expert bodies in this regard. We do not have
H
576 SUPREME COURT REPORTS [2016] 7 S.C.R.

A any contrary expert opinion on the subject and must go by the existing
expert views. Proceeding on this basis, it would be incorrect on the part
of Cipla and indeed the drug industry to say and contend that whatever
information is required by the Central Government for fixing the norms
was already available in the CA Rs and nothing more need be supplied to
the Central Government.
B
I 0 I. Assuming the submissiori of Cipla and the drug industry to be
correct, it would certainly not have been a problem at all for each company
to fill up the questionnaires sent by each of the Committees, if all the
information required by the questionnaires was already available in the
CAR of each company. Assuming again that the required information
c could be extracted by each Committee from the CAR, it could more
easily be extracted by each company from its own CAR and provided to
the Masood Committee and the Jharwal Committee. Under these
circumstances, it is inexplicable why the drug industry declined to fill up
the questionnaires sent to their member companies from time to time.
D There is certainly more to it than meets the eye.
I02. It is true, as contended by learned counsel for Cipla that no
manufacturer/formulator is under an obligation to furnish whatever
information is required by the Central Government including information
that might be confidential. But that does not mean that absolutely no
E information should be supplied by any company or incomplete information
should be supplied by a very few of them. It would certainly be more
appropriate for each company to have responded to the questionnaires
sent with a communication that some particular information is not being
furnished for reasons of confidentiality. But no such courtesy was
extended. While there may not be a statutory obligation on each
F manufacturer/formulator to furnish information for prescribing the norms,
there is certainly a moral and social obligation on them to furnish
information so that appropriate norms could be notified not only for their
benefit but also for the benefit of the consumers. The preamble to the
Essential Commodities Act, 1955 cannot be forgotten. By not furnishing
G the information required, the drug industry pushed the Central Government
into a corner leaving it with no option but to prescribe the norms on the
basis of available material and later re-notify the norms.
103. lt is also true that fixing the price of formulations based on
the norms prescribed under Paragraph 7 of the DPCO 1995 is a legislative
H activity which the Central Government was obliged to carry out on its
UNION OF INDIA & ORS. v. M/S. ClPLA LTD. & ANR. 577
[MADAN B. LOKUR, J.]

own research and assessment, assuming there was no cooperation from · A
the manufacturers/formulators. The efforts made by the Masood
Committee and the Jharwal Committee for prescribing the norms for
the purposes of Paragraph 7 of the DPCO 1995 were steps leading up
to this legislative activity. It is nobody's case that no preliminary steps
were taken or that no exercise was undertaken for arriving at appropriate
B
norms - the steps and exercise were in fact undertaken through expert
Committees but the material used in the exercise and the resultant Reports
were criticized by learned counsel appearing for Cipla. We are of the
view that given the circumstances that the two Committees were faced
with and given the virtual non-cooperative attitude of the drug industry,
the Central Government prescribed the norms and Cipla and the drug c
industry were obliged to accept them as notified without much ado. It
cannot be that the drug industry does not supply necessary information
and data to the expert Committees appointed by the Central Government
and then blames the Central Government for taking a decision without·
necessary information and data.
D
I 04. The failure of the drug industry to extend effective cooperation
appears to be an endemic problem. A situation somewhat similar to the
one that we are concerned with had arisen in Union of lnclhl v. Swiss
Garnier Life Sciences. - In that decision, it was noticed by this Court
that communications were sent to the manufacturers/formulators of a
particular formulation to provide reasons why that formulation should E
not be classified as a derivative of another formulation. In paragraph 4
of the Report, it was noted that the requisite information was not
furnished, even after a substantial lapse of time and a reminder. This
observation was reiterated in paragraph 44 of the Report and it was held
that in view of the refusal of the manufacturers/formulators to furnish F
the detailed information, the Central Government was well within its
jurisdiction to resort to Paragraph 11 of the DPCO 1995 and fix the
price ofthe formulation on the basis of information available.
I 05. Similarly, in Secretary, Ministry of Cltemicais and
Fertilizers v. Cipla Ltd. 8 it was observed by this Court in paragraph 8.4 0
of the Report that bulk drug producers did not disclose necessary
information to the Central Government, despite a request having been
made in that regard and that there was no good reason why the relevant
information should be withheld. It was observed:
1
(2013) s sec 615
• (2003) 1 sec 1 H
578 SUPREME COURT REPORTS [2016] 7 S.C.R.

A "Sales of bulk drugs effected during the year by bulk drug
producers including some of the respondents herein would
have furnished the best indicia of domestic sale turnover of
bulk drug. But, those details were not disclosed. Secondly,
if the bulk drug produced was consumed by any bulk drug
producer or importer and the drug was sold in the form of
B
formulations, the statistics regarding the quantum of bulk
drug utilized in such formulations and the value thereof must
have been within the knowledge or reach of the writ
petitioners and there is no good reason why they should
withhold all this relevant information and harp on the ORG
c data. There is no need to resort to guesswork when the
actual figures are available at the doorsteps of the
respondents."
I 06. Be that as it may, our conclusion on this aspect of the matter
is that the antecedent materials (the Reports) on the basis of which the
D norms were recommended and then prescribed under Paragraph 7 of
the DPCO I 995 are subject to lesser judicial scrutiny, limited perhaps
only to the application of completely erroneous principles. The burden
for demonstrating the application of completely erroneous principles is
heavy as it is and it is heavier still ifthe antecedent material is prepared
by experts. The onus of discharging the heavy burden must necessarily
E fall on the challenger, and Cipla has not been able to sustain the challenge.
There can be and are differences of opinion but we cannot and will not
reconsider the opinion of experts, particularly in matters of economic
affairs or other economy related issues unless there is extremely strong
reason to do so.
F 107. We end this discussion with a conclusion arrived at by the
Constitution Bench in Sltri Sitar(lnt Sug(lr Co. Ltd. in paragraph 49 of
the Report:
"Where a question of law is at issue, the court may
determine the rightness of the impugned decision on its own
G independent judgment. If the decision of the authority does
not agree with that which the court considers to be the
right one, the finding of law by the authority is liable to be
upset. Where it is a finding of fact, the com1 examines only
the reasonableness of the finding. When that finding is found
to be rational and reasonably based on evidence, in the sense
H
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 579
[MADAN B. LOKUR, J.]

that all relevant material has been taken into account and A
no irrelevant material has influenced the decision, and the
decision is one which any reasonably minded person, acting
on such evidence, would have come to, then judicial review
is exhausted even though the finding may not necessarily
be what the court would have come to as a trier of fact.
B
Whether an order is characterised as legislative or
administrative or quasi-judicial, or, whether it is a
determination of law or fact, the judgment of the expert
body, entrusted with power, is generally treated as
final and the judicial function is exhausted when it is
found to have ''warrant in the record" and a rational c
basis in law: See Rochester Tel. Corp. v. United States 9 •
See also Associated Provincial Picture Houses Ltd. v.
Wednesbury Corporation 1''." [Emphasis supplied]
This view was reaffirmed in paragraph 58 of the Report in the
following words: D
"Price fixation is not within the province of the courts.
Judicial function in respect of such matters is
exhausted when there is found to be a rational basis
for the conclusions reached by the concerned
authority. As stated by Justice Cardozo in Mississippi
E
Valley Barge Line Company v. United States ofAmerica. 11
"The structure of a rate schedule calls in peculiar measure
for the use of that enlightened judgment which the
Commission by training and experience is qualified to
fonn .... It is not the province of a court to absorb this
function to itself.... The judicial function is exhausted
F
when there is found to be a rational basis for the
conclusions approved by the administrative body."
[Emphasis supplied]
I 08. For the above reasons we disagree with the Allahabad High
Court and hold that the various notifications issued under Paragraph 7 of G
the DPCO 1995 in 1999 and thereafter prescribing the norms for
conversion cost, packing charges and process loss of raw materials (other
9 307 US 125 (1939): 83 Led 1147
iu (1948) I KB 223: (1947) I All ER 498
11
292 US 282. 286-287 : 78 Led 1260. 1265
H
580 SUPREME COURT REPORTS (2016] 7 S.C.R.

A than packing materials in conversion) and packing and process loss of
packing materials in packaging were issued after due application of mind
and based on available material duly examined by an expert body. The
notifications were not arbitrarily issued nor were they discriminatory in
any manner at all nor were they issued mechanically nor could it be said
that they were issued without any application of mind.
B
Re-notification of norms
I 09. Another facet of the submission oflearned counsel for Cipla
was that the same norms prescribed by the notification dated 13tl'July,
1999 could not have been notified mechanically year after year and the
c fact that the norms were simply re-notified from 2000 to 2003 is a clear
indication of non-application of mind by the Central Government to the
issue at hand. In response, the learned Solicitor General referred to Shri
Malaprablla Coop. Sugar Factory v. Union of India. 1" In that
decision, it was noted that the levy sugar prices for the 1975-76 sugar
season were notified at the same level as those in the previous season.
D This Court took the view that the re-notification could not be faulted on
grounds of arbitrary exercise of power for several reasons mentioned in
paragraph 84 of the Report. In other words, the concept or principle of
re-notification is not unheard of and there is no illegality per se in re-
issuing the norms without any change, but the reasons for re-notification
E ought to exist - re-notification should not be a short-cut method to be
routinely employed.
110. What then are the reasons that prompted the Central
Government to re-notify the norms prescribed by the notification dated
J3•h July, 1999? On the one hand, there was virtual non-cooperation
F from the drug industry in providing information to the Central Government
despite repeated requests and reminders even by expert Committees
constituted for the purpose. On the other there was a perceived statutory
obligation on the Central Government to notify the norms every year
and that responsibility could not be effectively discharged without the
cooperation of the drug industry. Therefore the Central Government,
G faced with an extra-ordinary situation and a stalemate putting the
consumers of an essential commodity at the mercy of the drug industry,
had no option but to re-notify the existing norms in public interest on the
basis of the available material.

"<I994J 1 sec 648
H
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 581
[MADAN B. LOKUR, J.]

111. We have adverted to the issues that confronted the Central A
Government during this period, namely, the unambiguous decision of the
drug industry not to extend any cooperation to the Central Government
in arriving at appropriate norms for the purposes of Paragraph 7 of the
DPCO 1995. The views of the Indian Pharmaceutical Association and
the IDMA have already been referred to. The insistence of the drug
B
industry to 'vvork out the norms on the basis of the CARs was another
stumbling block staring at the face of the Central Government. The Cost
Accounts Branch of the Department of Expenditure in the Ministry of
Finance, a neutral body in that sense, had clearly expressed the view
that the norms could not be effectively determined only on the basis of
the CARs. Finally, the non-cooperation of the drug industry from October c
1998 onwards was another road block. The overall attitude of the drug
industry appears to be one of profit making or preserving commercial
interests, while the concern should really be of promoting consumer
interest. Faced with these competing interests, the Central Government
sided with the consumer and cannot be faulted for it. The Central
D
Government did not act in a routine or mechanical manner in re-notifying
the norms every year from 2000 onward. In our opinion, the explanation
put forward by the learned Solicitor General deserves acceptance.
112. We conclude that the re-notification of the prescribed norms
in the period 2000 to 2003 was not mechanical or without any application
of mind. The materials were before the Central Government and there E
was no change in the content of the materials. If there was, the drug
industry failed to effectively point it out as a result of their non cooperative
attitude. We also hold that re-notification of the prescribed norms is per
se not impermissible and in the present case it was justified in the
circumstances. F
Challenge to the actual norms prescribed
113. In Prag Ice & Oil Mills it was held that price fixation is
really legislative in character since it satisfies the tests of legislation.
Similarly, in Cymtmide India it was held that price fixation is more in
the nature of a legislative activity than in any other. Price fixation may G
affect manufacturers and producers or commodities but those who are
most vitally affected are the consumers. Similarly, in Glaxosmitllkli11e
Pllarmaceuticals Ltd. v. Union ofIndia 1-' it was held that price fixation
by the Central Government under the DPCO is in the nature of a
"(2014) 2 sec 753 H
582 SUPREME COURT REPORTS [2016] 7 S.C.R.

A legislative measure and the dominant object and purpose of such price
fixation is the equitable distribution and availability of commodities at a
fair price. A similar view was expressed by a Constitution Bench of this
Court in Sltri Sitaram Sugur Compllny Ltd. when it was said: "Price
fixation is in the nature of a legislative action even when it is based on
objective criteria founded on relevant material." In Suruswuti Inc/ustria/
B
Syndicate Ltd. v. Union of Indill 14 this Court was more specific when
it said that "Price fixation is more in the nature of a legislative measure
even though it may be based upon objective criteria found in a report or
other material."
114. The norms fixed by the Central Government are of general
c application, they are not intended to benefit or harm any particular
manufacturer or formulator and indeed no manufacturer or formulator
is required to be heard (or was heard) in the detennination, they are
notified in the Official Gazette forthe information of the general public
and in arriving at the norms the general attributes oflegislative activity
D are attended to by the Central Government for the benefit of the
consumers. The notification of the norms therefore has the character of
legislative activity.
115. No submission was made before us to the effect that the
formula given in Paragraph 7 of the DPCO 1995 was not applied proprio
E vigore by the Central Government. The statutory criterion for price fixing
is the formula given in Paragraph 7 of the DPCO 1995. Whether this
formula has been operated as it should be is certainly subject to judicial
review. Therefore, while operating the formula, ifthe Central Government
did not take conversion cost into consideration (for example) or took into
consideration some factor not in the formula then, the Court could certainly
F strike down the retail price or the ceiling price so fixed by the Central ·
Government on the ground that relevant factors were ignored or irrelevant
factors were taken into consideration. No such allegation was made and
no such contention was advanced by learned counsel for Cipla.
Therefore, we need not dwell on this aspect.
G (ii) Yearly prescription of norms
116. lt may be recalled that prior to 1995, the norms for conversion
cost, packing charges and process loss of raw materials (other than
packing materials in conversion and packing) and process loss of packing
"(1974) 2 sec 630
H
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 583
[MADAN 8. LOKUR, J.]

materials in packaging were prescribed by notifications issued on 17m A
February, 1989 and I 51h July, 1993 in exercise of powers conferred by
Paragraph 6 of the DPCO 1987. When the DPCO 1995 was issued, it
provided for a 'transitional' provision through Paragraph 8(5) and
Paragraph 27 thereof.
11 ·i'. Paragraph 8(5) of the DPCO 1995 provides that the retail 8
price of a scheduled formulation shall, until the retail price thereof is
fixed under the DPCO 1995, be the price which prevailed immediately
before the commencement of the DPCO 1995. 15 Paragraph 8 of the
DPCO 1995 reads as follows:
"8. Power to fix retail price of scheduled formulations. c
-(I) The Government may, from time to time, by order, fix
the retail price of a Scheduled formulation in accordance
with the formula laid down in para. 7.
(2) Where the Government fixes or revises the price of
any bulk drug under the provisions of this Order and a
D
manufacturer utilises such bulk drug in his scheduled
formulations he shall, within thirty days of such fixation or
revision, make an application to the Government in Form
Ill for price revision of all such formulations and the
Government may, if it considers necessary, fix or revise the
price of such formulation. E
(3) The retail price of a formulation on.ce fixed by the
Government under sub-paragraphs (I) and (2) shall not be
increased by any manufacturer except with the prior
approval of the Government.
(4) Any manufacturer, who desires revision of the retail F
price of a formulation fixed under sub-paragraph ( 1), shall
make an application to the Government in Form III or Form
IV, as the case may be, and the Government shall after
making such enquiry, as it deems fit within, a period of two
months from the date of receipt of the complete infonnation, G
fix a revised price for such formulation or reject the
application for revision for reasons to be recorded in writing.
" ·'Retail price includes ceiling price (fixed under Paragraph 9 of the DPCO 1995).
Retail price is defined in Paragraph 2(s) of the DPCO 1995 as follows: "retail price"
means the retail price of a drug arrived at or fixed in accordance with the provisions of
this Order and includes a ceiling price.'" H
584 SUPREME COURT REPORTS [2016] 7 S.C.R.

A (5) Notwithstanding anything contained in the foregoing sub-
paragraphs the retail price of a scheduled formulation, of a
manufacturer shall, until the retail price thereofis fixed under
the provisions of this Order, be the price which prevailed
immediately before the commencement of this Order, and
the manufacturer of such formulation shall not sell the
B
formulation at a price exceeding the price prevailing
immediately before the commencement of this Order.
(6) No manufacturer or importer shall market a new pack,
if not covered under sub-paragraph 3 of para 9, or a new
formulation or a new dosage form of his existing scheduled
c· formulation without obtaining the prior approval of its price
from the Government.
(7) No person shall sell or dispose ofany imported scheduled .
formulation without obtaining the prior approval of its price
from the Government."
D
Similarly, Paragraph 27 of the DPCO 1995 provides that any
notification issued under the DPCO 1987, unless it is inconsistent with
its provisions will be deemed to have been issued under the corresponding
provision of the DPCO 1995. Paragraph 27 of the DPCO 1995 reads as
follows:
E
"27. ~epeal and saving.- (I) The Drugs (Prices Control)
Order, 1987 is hereby repealed.
(2) Notwithstanding such repeal, anything done or any action
taken, including any notification or Order made, direction
given, notice issued or exemption granted under the Drugs
F
(Prices Control) Order, 1987, shall in so far as it is not
inconsistent with the provisions of this Order, be deemed to
have been done taken, made, given, issued or granted, as
the case may be, under the corresponding provisions of this
Order."
G
Ex facie therefore, there is no error in continuing the norms
prescribed under the DPCO 1987 even after the promulgation of the
DPCO 1995. However, the question is whether this arrangement can
continue indefinitely?
118. The DPCO 1995 came into operation on 6'h January, 1995.
H
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 585
[MADAN B. LOKUR, J.]

Ordinarily therefore the first notification under Paragraph 7 thereof ought A
to have been issued in July 1995, or soon thereafter. (We were told by
the learned Solicitor General that the year for prescribing the nonns is
from July to June of the following year. It is for this reason that the
various notifications under Paragraph 7 of the DPCO 1995 were issued
in July). Perhaps the Masood Committee was constituted on 24th April,
B
1995 forth is purpose and initially it was required to submit its Report on
or before 30th June, 1995 but time was extended till 31" August, 1995.
119. Whatever be the position, the fact is that the Central
Governme:it did not notify the norms on a yearly basis for four years
1995-1996, 1996-1997, 1997-1998 and 1998-1999. We are really
concerned with the default for this period. The NPPA was set up on 29th c
August, 1997 and the Jharwal Committee was set up on 8'11 October,
1998 more than two years and three years respectively after the DPCO
I ~95 was issued. The purpose of setting up the Jharwal Committee was
to revise the norms applicable since 15th July, 1993. Pursuant to the
Report of the Jharwal Committee the Central Government did issue a D
notification on ] )th July, 1999 under Paragraph 7 of the DPCO 1995. On
the issue under consideration, we are presently not concerned with the
period 1999 onwards till 2004.
120. Paragraph 7 of the DPCO 1995 gives the formula for arriving
at the retail price of a formulation. The application of the formula is E
undoubtedly mandatory and the Central Government cannot contend
that the retail price of a fonnulation can be fixed de hors the formula.
The question i$ whether the norms mentioned in Paragraph 7 of the
DPCO 1995 are required to be prescribed every year even ifthere is no
perceived qualitative or quantitative change in them. In other words, is
the prescription of norms every year mandatory even though F
circumstances do not warrant any such prescription and what is the
consequence ifthe Central Government does not prescribe the norms
every year- is it fatal to the notifications issued under Paragraphs 8 and
9 of the DPCO 1995 whereby the retail price and ceiling price of
formulations was fixed? G
12 l The purpose of detennining and prescribing the norms every
year is limited to the requirement of fixing the retail price of formulations
in terms of the fonnula given in Paragraph 7 of the DPCO 1995. The
Central Government set up the Masood Committee in April 1995 precisely
for this purpose. However its work was stymied by the drug industry H
586 SUPREME COURT REPORTS [2016] 7 S.C.R.

A through its non-cooperation. It is true that notwithstanding the road block
set up by the drug industry, the Central Government could very well
have determined and prescribed the norms as required by Paragraph 7
of the DPCO 1995. Why didn't the Central Government do so?
122. There are several reasons that can be culled out from the
B Report of the Masood Committee for the Central Government not
determining and prescribing the norms in 1995 and thereafter for the
next three years. Firstly, according to the Masood Committee the drug
industry had been provided a sufficient cushion by the acceptance of the
recommendations of the Sankaran Committee. Under the circumstances
continuing with the norms for conversion cost and packing charges
c prescribed under the DPCO 1987 would not have disadvantaged the
manufacturers/fonnulators in any manner.
123. Secondly, the packing material ceilings had been recently
upwardly revised from Th July, 1994 and the manufacturers/formulators
could take advantage of the cost of packing material on actuals. Surely,
D this was beneficial to them.
124. Thirdly, according to the Masood Committee with high
production levels and better capacity utilization as well as new
technological processes, the process loss on raw materials and packing
material ought to have come down. But since the drug industry did not
E provide necessary information through the questionnaire sent to the drug
industry and the companies, an ad hoc reduction in the existing norm for
process loss fixed by the Sankaran Committee was not recommended
by the Masood Committee. This too was to the advantage of the
manufacturers I formulators. Actually, the Masood Committee expressed
F the view that the existing nonns for process loss on raw materials and
packing materials was on the high side.
125. Fourthly, the Masood Committee noted that there was a
decrease in total formulation activity coming under price control from
70% under the DPCO 1987 to 50% under the DPCO 1995 and uniform
G MAPE of 100% under the DPCO 1995 as against 75% and 100%
MAPE under the DPCO 1987. Even this was advantageous to the
manufacturers/formulators.
126. Whichever way the issue is looked at, it is clear that the
manufacturers/formulators were not put to any disadvantage in the retail
price fixed on the basis of the norms prescribed under the DPCO 1987.
H
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 587
[MADAN B. LOKUR, J.]

Therefore, we are of opinion that under these circumstances, the bona A
fides of the Central Government in not prescribing the norms every
year certainly cannot be doubted.
127. That apart, the provisions of Paragraph 8(5) and Paragraph
27 of the DPCO 1995 come to the aid of the Central Government and
- these provisions enabled the continuation of the norms prescribed under B
Paragrap)l 6 of the DPCO 1987 and saved the notifications issued under
the provisions of Paragraphs 8 and 9 of the DPCO 1995. This
'arrangement' certainly could not have carried on indefinitely, but the -
recalcitranc~ of the drug industry pushed the Central Government into a ·
corner leaving it with little option but to continue the 'arrangement' till an
alternative was found through an in-depth study. This is pl:rhaps where
c
the Central Government erred. It should have set up the NPPA soon
after announcing the new Drug Policy in I 994 and it should have enacted
a legislation constituting the National Drug Authority in terms of the
Drug Policy, 1994. Had these steps been taken, the Central Government
would not have to face litigation in different parts of the country. What is D
tragic is that even today, there does not seem to be any sign of the
Central Government taking any steps to constitute a statutory National
Drug Authority.
128. But be that as it may, although several notifications issued
between 1995 and 1999 were collaterally challenged- by the E
manufacturers/formulators, we were not shown any notification in which
the retail price or the ceiling price was varied to their detriment. Assuming
there was such a notification, a manufacturer/formulator was entitled to
question the adverse revision by moving an application u_nder the
provisions of Paragraph 8(4) and Paragraph 22 of the DPCO 1995. No
such application was moved by any manufactureffformulator. Paragraph F
22 thereof reads as follows:
"22. Power to review.- Any person aggrieved by any
notification issued or order made under paras. 3, 5, 8, 9 or
I 0 may apply to the Government for a review of the
notification or order within fifteen days of the date of G
pubfa:qtion of the notification in the Official Gazette or the
receipt of the order by him, as the case may be, and the
Government may make such order on the application as it
may deem proper :
H
588 SUPREME COURT REPORTS [2016] 7 S.C .R.

A Provided that pending a decision by the Government on
the application submitted under the above paragraph, no
manufacturer, importer or distributor, as the case may be,
shall sell a bulk drug or formulation, as the case may be, at
a price exceeding the price fixed by the Government of
which a review has been applied for."
B
It was contended that a revision could not be sought since norms
were not fixed and for the purposes of challenging the retail price or the
ceiling price fixed under Paragraphs 8 and 9 (as the case may be) ofthe
DPCO 1995 it was necessary to know the norms fixed. We propose to
deal with this issue a little later.
c
129. A question of seminal importance arises, namely, whether the
legislative activity of prescription of norms every year is at all necessary
even if there is no occasion to change or modify the retail price of a
formulation. Is the exercise of determining the norms by the Central
Governments required to be mechanically carried out every year as a
D ritual? Perhaps not. It is not necessary to revise the retail price or
ceiling price of every formulation every year - and if there is no such
mandate, then it must follow that there is no mandate to prescribe the
norms every year under Paragraph 7 of the DPCO just for the sake of
it. What consumer interest would an annual change in retail price serve
E in the context of over 2000 formulations? What has to be seen by the
Central Government, in the larger context, is whether the drug industry
is losing out in any manner and whether the consumers of formulations
are being put to any discomfort. A fine balance has to be struck and if
the Central Government has been successful in doing that, as it appears,
then carrying out an annual ceremonial procedure or annual academic
F exercise of determining and prescribing the norms under Paragraph 7 of
the DPCO 1995 regardless of whether there is any necessity to do so is
not mandatory.
130. The Central Government cannot be compelled to perform a
legislative activity or legislative exercise that is of no consequence and
G is perhaps ritualistic. We are ofopinion that while the formula given in
Paragraph 7 of the DPCO 1995 must be mandatorily adhered to for
fixing the retail price of a formulation, the requirement of prescribing the
norms every year is discretionary and would depend upon the exigencies
of the situation - it might be every year or less frequently or more
H frequently.
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 589
[MADAN 8. LOKUR, J.]

131. It was also contended by learned counsel for one of the A
respondents before us that there was a qualitative difference between
the DPCO 1987 and the DPCO 1995 in as much as under the DPCO
1987 the norms were required to be prescribed from time to time under
Paragraph 6 thereof. However, .as far as the DPCO 1995 is concerned
the norms were required to be prescribed on a yearly basis under
8
Paragraph 7 thereof. The submission was that the principles known as
Heydon s mischief rule 16 are clearly applicable and there was a
conscious decision by the Central Government to switch over from
prescribing the norms from time to time to fixing the norms on a yearly
basis. Since the norms were not fixed on a yearly basis under the DPCO
1995, the retail prices fixed by the Central Government on the formulations c
on the basis of Paragraph 7 of the DPCO 1995 were illegal and liable to
be struck down.
132. What was the mischief, if any, sought to be remedied? Nothing
has been told to us in this regard by learned counsel. Given the scheme
of the DPCO 1995 there was no mandate of prescribing the norms D
under Paragraph 7 of the said DPCO every year. We therefore merely
note the submission for whatever it is worth.
(iii) Failure ~o prescribe the norms for cost of packing material
133. We may recall that the Sankaran Committee had noted that
the norms for cost of packing material were not prescribed from 1979 E
onward. Far from objecting to this, the drug industry had itself requested
the Sankaran Committee to permit the cost of packing material to be
taken on actuals. The Sankaran Committee accepted this suggestion
while taking into account the inherent difficulty in prescribing any norm
for cost of packing materials. We may draw attention to the notification F
dated J71h February, 1989 followed by the notification dated l 5'h July,
)993 both issued under Paragraph 6 of the DPCO 1987 in this regard.
Neither notification made any provision for cost of packing material as a
norm. The notification dated l 7•h February, 1989 prescribe.d norms for
conversion cost, packing charges and process loss of raw materials (other .
than packing materials in conversion and packing) and process loss of G
packing materials in packaging. The notification dated J 5•h July, 1993
prescribed norms only for conversion cost and packing charges. No
manufacturer or formulator made any grievance or complaint regarding
the failure of the Central Government to prescribe the cost of packing
16
Heydon's Case, Neutral Citation Number: [1584) EWHC Exch 136
H
590 SUPREME COURT REPORTS [2016] 7 S.C.R.

A material as a norm.
134. The situation has not changed at all over the years. The silence
of the drug industry continued as is evident from the fact that even 15
years later a notification was issued by the Central Government on 11th
August, 2004 under Paragraph 7 of the DPCO 1995 prescribing the
B norms for conversion cost, packing charges and process Joss of raw
materials (other than packing materials in conversion and packing) and
process loss of packing materials in packaging - but not for cost of
packing material as a norm. Despite this, we were told by learned counsel
appearing for the parties that there has been no dispute about price
fixation since 2004 due to the absence of a norm for cost of material.
c
13 5. In other words, it does appear to us that the drug industry
was content with being allowed to take the cost of packing material on
actuals rather than insisting on the Central Government issuing a
notification prescribing the nonns for cost of packing material. We believe
that in fact there was no necessity of fixing the cost of packing material
D as a norm for the purposes of Paragraph 7 of the DPCO 1995 and that
there was no fatal error in the notifications issued under Paragraph 7 of
the DPCO 1995 from 1999 onward. This also adds to our conclusion
that prescribing the norms every year under Paragraph 7 of the DPCO
1995 was a discretionary exercise.
E 136. As mentioned above, we can quite understand ifthe formula
given in Paragraph 7 of the DPCO 1995 is not strictly adhered to by the
Central Government while working out the retail price of a formulation.
But ifthe drug industry is itself quite content with being given the benefit
of actuals in material cost rather than having a norm fixed in that regard,
F then there is no obligation on us to completely upset the apple cart and
quash a few dozen notifications at the behest of only a couple of
respondents. If we do so, we would be acting to the detriment of the
entire drug industry (except one - and we must mention that not many
other manufacturers and formulators are before us), but we would also
provide no advantage to the consumers who ha_ye already purchased
G the formulations more than a decade ago and have no hope of getting a
refund on their purchase. Additionally, we would really be serving no
public or societal interest in q4ashing a few dozen notifications under
these circumstances.
' '

137. We may mention en passant that the ceiling price fixed by
H
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 591
[MADAN B. LOKUR, J.]

the BICP on 7"' July, 1994 and thereafter revised by the NPPA in February A
1998 in respect of packing materials has not been questioned (let alone
challenged) by anybody.
(iv) Other submissions
138. It was contended by learned counsel appearing on behalf of
Dr. Reddy's Laboratories Ltd. that the retail price or the ceiling price of 8
a formulation could not have been fixed by the Central Government
without first fixing the maximum sale price under Paragraph 3 of the
DPCO 1995 of the bulk drug utilized in the formulation. We are unable
to accept this submission. In the first place, there is no obligation on the
Central Government to fix the maximum sale price of every bulk drug, c
whether it is in the First Schedule to the DPCO 1995 or not. In fact, if
a bulk drug is not in the First Schedule to the DPCO 1995 the Central
Government is not empowered to fix its maximum sale price. There
could also be a situation where a formulation consists of two or more
drugs, one of which is not a scheduled drug. In that event, if the contention
· oflearned counsel is accepted then it would mean that the retail price or D
the ceiling price of that formulation cannot be fixed. This is surely not
the intention of the DPCO 1995 nor is it a possible manner of reading
the DPCO 1995. If the DPCO 1995 were to be read in the suggested
manner, then every drug would have to be included in the First Schedule
to the DPCO 1995 as a pre-condition to fixing the retail price or ceiling E
price of a formulation which contains that drug. This would be doing
utmost violence to the plain provisions of the DPCO 1995 and for this
simple reason we are unable to acceptthe submission oflearned counsel.
The learned counsel has unfortunately overlooked that a formulation
can contain 011e or more bulk drugs including a bulk drug not included in
the First Schedule to the DPCO 1995. F
139. It has also l?een argued before us by learned counsel
representing a small scale industry that the ceiling price of formulations
fixed under Paragraph 9 of the DPCO 1995 denied the benefit of an
exemption notification dated 2"d March, 1995 available to small scale
industries. We are not inclined to take this argumen1 with any degree of
seriousness particularly since it seems to suggest that the Central
Government acted with a ma/a fide intent. There is no warrant for
such an assumption and no such allegation or averment has been made
in the pleadings. The issuance ofa notification under Paragraph 9 of the
H
592 SUPREME COURT REPORTS (2016) 7 S.C.R.

A DPCO 1995 is a legislative exercise of power and to say that it was
resorted to for denying the benefit ofan exemption to small scale industries
can hardly be given any credence. However, if the submission was
intended to convey the difficulty faced by small scale industries, it can
hardly be helped. There is nothing in the DPCO 1995 to suggest that a
small scale industry is kept out of the rigour of the DPCO 1995. It is
B
equally bound by any retail price· or ceiling price fixation by the Central
Government.
140. It was then contended on behalf of the manufacturers/
formulators that the delegate of a power cannot travel beyond its
authorization. Reliance in this regard was placed on V.K As/wkan v.
c Assistant Excise Commissioner17 and District Collector, Cllittoor v.
Cllittoor District Groundnut Traders Association. 18 There can be no
dispute about th is proposition. It was further contended that if the
delegate exceeds the powers conferred upon it by the principal, then the
order passed by the delegate is void ab initio and cannot even be ratified.
In this regard, reliance was placed on Maratllwada University v.
D
Seslirao Ba/want Rao Chavan. 19 The issue in the present case is not
that the delegate (the Central Government) had exceeded its jurisdiction
- the issue is that the Central Government failed to exercise the power
vested in it by Paragraph 7 of the DPCO 1995. It is this that is under
challenge and not the exercise of power in excess of jurisdiction. The
E decisions cited on behalf of the manufacturers/formulators in this regard
are therefore not quite relevant. In any event, we have already· dealt
with the issue of the purported failure of the Central Government to
i.:omply with the requirement of prescribing the norms under Prtragraph
7 of the DPCO 1995 and repetition is not necessary.
F 141. We may mention that relying upon Associated Provincial
Picture Houses Ltd. v. Wednesbury Corporation,~0 Mayor & C
Westminster Corporation v. London anti North Western Railway?
Barium Chemicals Ltd. v. Company Law Boart/12 and State of U.P.
v~ Renusagar Power Co. 2•1 the Constitution Bench observed in Sliri
~itaram Sugar Company Ltd. that ;'A repository of power acts ultra
G 11
(2009) 14 sec 85
" ( 1989) 2 sec 58
• (1989) 3 sec 132
1

20
( 1948) 1 KB 223 : ( 194 7) 1 All ER 498
21 1905 AC 426.430: 93 LT 143
22 1966 Supp SCR 311

H "(1988) 4 sec 59
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 593
. [MADAN B. LOKUR, J.]

vires either when he acts in excess of his power in the narrow sense or A
when he abuses his power by acting in bad faith or for an inadmissible
purpose or on irrelevant grounds or without regard to relevant
considerations or with gross unreasonableness." 1t was then concluded
in paragraph 52 of the Report:
"The true position, therefore, is that any act of the repository B
of power, whether legislative or administrative or quasi-
judicial, is open to challenge if it is in conflict with the
Constitution or the governing Act or the general principles
of the law of the land or it is so arbitrary or unreasonable
that no fair minded authority could ever have made it."
c
142. To this we may add thatthe action of a repository of power is
also amenable to judicial review ifit is contrary to or violates the mandatory
requirement of a subordinate legislation. Therefore, if the Central
Government does not adhere to the formula given in Paragraph 7 of the
DPCO 1995 and fixes the retail price or ceiling price of formulations
without following the formula laid down, the notification issued by the D
Central Government under Paragraph 8 or Paragraph 9 of the DPCO
1995 (as the case may be) is liable to quashed as being contrary to law.
However, no instance has been pointed out to us compelling us to use
our power of judicial review and quash the notifications under
consideration. E
Alternative remedy
143. The learned Solicitor General was quite vehement in his
submission that if any manufacturer or formulator was aggrieved by the
fixing of any the retail price or ceiling price of any formulation, there
was an alternative remedy available in the DPCO 1995 to ventilate and ~· F
articulate the grievance. There is no reason why no one actually sought
any revision or review of any of the price notifications before us. In this
context it was pointed out that several constituents of the drug industry
had taken resort to alternative procedures (including Cipla) and therefore
it is not as ifthe alternative remedy is illusory. G
144. In response, it was contended that there was hardly any
material before Cipla to meaningfully resort to the alternative remedy
provided under the DPCO 1995. Additionally, the norms were not
prescribed on an annual basis and in the absence of the norms it was not
H
594 SUPREME COURT REPORTS [2016] 7 S.C.R.

A possible for anyone to make an effective case for revision or review of
any retail price or ceiling price notification. Reference was made to
Form III in the Second Schedule to the DPCO 1995.
I 45. Form Ill is a Form of application for approval or revision of
the price of scheduled formulations. This requires, in paragraph I 3
B thereof, information relating to the break-up of the retail price of a
formulation. Our attention was drawn to sub-paragraph (b) [Conversion
Cost (as per·norms)] and sub-paragraph (c) [Packing Material Costs
(Per SI. No. 15 or as per norms)]. The submission was that an effective
application could not be made without the norms being prescribed. As
mentioned above, the norm for conversion cost was prescribed first by
c the notification dated I 7•h February, 1989 and then by the notification
dated JJlh July, 1999 (and subsequent notifications). It is difficult to accept
the submissioQ that despite these notifications a manufacturer or
formulator was unaware of the norms for conversion cost. As far as the
norm for packing material cost is concerned, sub-paragraph (c) provides
D an option to the applicant-either the information mentioned in paragraph
15 may be provided or the norms may be provided. Paragraph 15 requires
the applicant to provide information pertaining to the pack, batch size
(tablets I gms etc.), name of the packing material, rate per unit, quantity
. required per batch and value of packing material/batch nos./kgs etc. (in
rupees). Therefore, even ifthe norm for cost of packing material is not
E prescribed, the applicant can provide the requisite information (based on
actuals) for the purposes of making an effective application for revision
of the price of a scheduled formulation. Incidentally, the Form also
confirms that no manufacturer or formulator is placed at any disadvantage
ifthe norm for packing material cost is not prescribed under Paragraph
F 7 of the DPCO 1995 but actuals are allowed.
146. The efficacy of the alternative remedy provided in the DPCO
was the subject matter of consideration in Cynamide India Ltd. The
contention urged therein was that for the purposes of price fixing, facts
and figures were arbitrarily assumed by the Central Government. Rejecting
G this, it was held by this Court in paragraph 11 of the Report as follows:
-" ......... We do not propose to delve into the question
whether there has been any such arbitrary assumption of
facts and figures. We think that ifthere is any grievance on_
that score, the proper thing for the manufacturers to do is
H bring it to the notice of the Government in their applications
UNION OF INDIA & ORS. v. MIS. CJPLA LTD. & ANR. 595
[MADAN B. LOKUR, J.]

for review. The learned counsel argued that they were unable A
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
B
hearing of the review applications and there was no
justification for the grievance that particulars were not
furnished. We are satisfied that the procedure followed
by the Government in furnishing the requisite
particulars at the time of the hearing of the review
applications is sufficient compliance with the demands c
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 Co~trol) Order." [Emphasis supplied by us]."
We have no doubt that if any manufacturer or formulator had
taken the trouble of preferring a revision or review application, all D
necessary material would have been inade available to the complainant
for an effective representation. We are satisfied that none of the parties
before us was precluded by circumstances from preferring a revision or
review for corrective measures in relation to the retail price or ceiling
price of any particular formulation - in fact, we are told by the learned
Solicitor General that some of them did. E

147. Strictly speaking, in view of the availability of an alternative
and efficacious remedy available under the DPCO 1995 read with the
decision of this Court in Cynllmitle Indill Ltd. the writ petitions filed by
the manufacturers and formulators before us ought not to have been
entertained by the concerned High Courts, but.we leave it at that. F

Forum shopping
148. The learned Solicitor General submitted that Cipla was guilty
of forum shopping inasmuch as it had filed petitions in the Bombay High,
Court, the Karnataka High Court ancl also an affidavit in the Delhi High G
Court as a member of the Bulk Drug Manufacturers Association and
had eventually approached the Allahabad High Court for relief resulting
in the impugned judgment and order dated 3rd March, 2004. It was
submitted that since Cipla had approached several constitutional Courts
· for relief, the proceedings initiated in the Allahabad High Court clearly
H
596 SUPREME COURT REPORTS [2016) 7 S.C.R.

A amount to forum shopping.
149. We are not at all in agreement with the learned Solicitor
General. Forum shopping takes several hues and shades and Cipla's
petitions do not fall under any category of forum shopping.
150. A classic example of forum shopping is when a litigant
B approaches one Court for relief but does not get the desired relief and
then approaches another Court for the same relief. This occurred in
Rajiv Bhatia v. Govt. of NCT of Delhi and others. 24 The respondent-
mother of a young chi Id had filed a petition for a writ of habeas corpus
in the Rajasthan High Court and apparently did not get the required
c relief from that Court. She then filed a petition in the Delhi High Court
also for a writ of habeas corpus and obtained the necessary relief.
Notwithstanding this, this Court did not interfere with the order passed
by the Delhi High Court for the reason that this Court ascertained the
views of the child and found that she did not want to even talk to her
adoptive parents and therefore the custody of the child granted by the
D Delhi High Court to the respondent-mother was not interfered with.
The decision of this Court is on its own facts, even though it is a classic
case of forum shopping.
151. In Aratlti Randi v. Bcmdi Jagadmksltaka Rao 2-' this Court
noted that jurisdiction in a Court is not attracted by the operation or
E creation of fortuitous circumstances. In that case, circumstances w~re
created by one of the parties to the dispute to confer jurisdiction on a
particular High Court. This was frowned upon by this Court by observing
that to allow the assumption of jurisdiction in created circumstances
would only result in encouraging forum shopping.
F 152. Another case of creating circumstances for the purposes of
forum shopping was World Tanker Carrier Corporatioq v. SNP
Shipping Services Pvt. Ltd. and ot/lefs26 wherein it was observed that
the respondent/plaintiff had made a deliberate attempt to bring the cause
of action namely a collision between two vessels on the high seas within
G the jurisdiction of the Bombay High Court. Bringing one of the vessels
to Bombay in order to confer jurisdiction on the Bombay High Court had
the character of forum shopping rather than anything else.

" <1999) s sec 525
~· (2013) 15sec 790
"< 1998) 5 sec 310
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 597
[MADAN B. LOKUR, J.]

153. Another form of forum shopping is taking advantage of a A
view held by a particular High Court in contrast to a different view held
by another High Court. In Amhica Industries v. Commissioner of
Central Excise 27 the assessee was from Lucknow. It challenged an
order passed by the Customs, Excise and Service Tax Appellate Tribunal
(the CESTAT) located in Delhi before the Delhi High Court. The CESTAT
B
had juri~diction over the States of Uttar Pradesh, NCT of Delhi and
Maharashua. The Delhi High Court did not entertain the proceedings
initiated by the assessee for want of territorial jurisdiction. Dismissing
the assessee's appeal this Court gave the example of an assessee
affected by an assessment order in Bombay invoking the jurisdiction of
the Delhi High Court to take advantage of the law laid down by the c
Delhi High Court or an assessee affected by an order of assessment
made at Bombay invoking the jurisdiction of the Allahabad High Court
to take advantage of the law laid down by it and consequently evade the
law laid down by the Bombay High Court. It was said that this could not
be allowed and circumstances such as this would lead to some sort of
D
judicial anarchy.
154. Yet another form of forum shopping was noticed in Jagmolum
Bait/ and a11otlter v. State (NCT of Del/ti) anti m10tlter2H wherein it .
was held that successive bail applications filed by a litigant ought to be
heard by the same learned judge, otherwise an unscrupulous litigant would
go on filing bail applications before different judges until a favourable E
order is obtained. Unless this practice was nipped in the bud, it would
encourage unscrupulous litigants and encourage them to entertain the
idea that they can indulge in forum shopping, which has no sanction in
law and certainly no sanctity.
155. Another category of forum shopping is approaching different F
Courts for the same relief by making a minor change in the prayer clause
of the petition. In Utlyami Evam Klwtli Gramotlyog Weifare Stmstlw
and anotlter v. State of Uttar Pratleslt anti otlters29 it was noticed by
this Court that four writ applications were filed by a litigant and although
the prayers were apparently different, the core issue in each petition G
centred round the recovery of the amount advanced by the bank.
Similarly, substituting some petitioners for others with a view to confer
jurisdiction on a particular Court would also amount to forum shopping
"(2007) 6 sec 769
"(2014) 16 sec 501
" (2008) 1 sec 560 H
598 SUPREME COURT REPORTS [2016] 7 S.C.R.

A by that group of petitioners.
156. Finally and more recently, in Supreme Court Advocates on
Record Association v. Union of India (Recusal Matter)3° Justice
Khehar noticed yet another form of forum shopping where a litigant
makes allegations of a perceived conflict of interest against a judge
B requiring the judge to recuse from the proceedings so that the matter
could be transferred to another judge.
157. The decisions referred to clearly lay down the principle that
the Court is required to adopt a functional test vis-a-vis the litigation and
the litigant. What has to be seen is whether there any functional similarity
c in the proceedings between one Court and another or whether there is
some sort of subterfuge on the part of a litigant. It is this functional test
that will determine whether a litigant is indulging in forum shopping or
not.
158. Keeping all these examples in mind with several other nuances
D and also keeping the functional test in mind, we have examined the relief
claimed by Cipla in the different High Courts and find that they have no
substantive connection whatsoever with the relief claimed in the
Allahabad High Court.
159. Be that as it may, we have examined the submissions made
E by the learned Solicitor General in respect of each of the writ petitions
filed by Cipla.
160. The Bulk Drug Manufacturers Association had filed W.P.
No. 5578of1997 in the Delhi High Court in which it had challenged the
inclusion of8 bulk drugs in the First Schedule of the DPCO 1995. Among
the bulk drugs whose inclusion was challenged were Salbutamol,
F
Theophylline, Ciprofloxacin and Norfloxacin.
161. The Delhi High Court required the members of the Bulk Drug
Manufacturers Association to file an affidavit stating that they would be
bound by the orders passed by the Delhi High Court. Pursuant to this
direction, Cipla filed an affidavitin the Delhi High Court on 241h May,
G
1999 stating that any final decision taken on the question of the inclusion
or exclusion ofSalbutamol and Theophylline in W.P. No.5578of1997
will be binding on Cipla subject to any appeal preferred thereon. It was
also disclosed by Cipla that it had already filed a writ petition in the

H '" (2016) s sec 808
UNION OF INDIA & ORS. v. MIS. CIPLA LTD. & ANR. 599
[MADAN B. LOKUR, J.]

Bombay High Court on 9 1h April, I 999 to the effect that Salbutamol be A
exempted from price control under the DPCO 1995.

162. As mentioned above, on 9th April, 1999 Cipla had filed a writ
petition being W.P.No.1749 of 1999 in the Bombay High Court. The
challenge therein was to the inclusion of bulk drugs Salbutamol and
Theophyiline in the First Schedule ofDPCO 1995. B

163. Cipla also filed Writ Petition No.1974 of2000 in the Bombay
High Court on 22"d September, 2000 seeking exclusion of the bulk drug
Ciprofloxacin from the ambit of price control under the DPCO 1995. It
was contended that it should be excluded from the First Schedule of the
DPCO 1995. c
164. Cipla filed a third writ petition in the Bombay High Court
being W.P. No.2019 of 2000. This was filed on 28th September, 2000
and the challenge was to the inclusion of the bulk drug Norfloxacin within
the ambit of price control under the DPCO 1995.
D
165. Cipla also filed writ petitions in the Karnataka High Court
being W.P. Nos.33989-34011 of2000. ln these writ petitions, several
notifications issued under Paragraph 8 and Paragraph 9 of the DPCO
1995 as well as demand notices issued to Cipla were under challenge.
166. We find that almost all the notifications under challenge in the E
Karnataka High Court were also the subject matter of challenge in the
Allahabad High Court. However, Cipla had disclosed before the
Allahabad High Court that it had filed writ petitions before the Karnataka
High Court. There was therefore no concealment of any facts by Cipla.
We also find that the consequence of allowing the three writ petitions
filed by Cipla in the Bombay High Court would have had an impact on F
the notifications challenged in theAllahabad High Court, but that impact
would have been collateral and consequential. We are of opinion that
under these circumstances, Cipla ought to have disclosed the filing of
writ petitions in the Bombay High Court, but at this stage we.do not think
it appropriate to non-suit Cipla only on this ground. G
167. The proceedings in the Allahabad High Court were initiated
as a result of a show cause notice issued to Cipla. No similar show
cause notice and no similar factual circumstances existed. in any of the
other High Courts in which Cipla had initiated proceedings. It cannot,
H
600 SUPREME COURT REPORTS [2016] 7 S.C.R.

A therefore, be said that Cipla had indulged in forum shopping in any manner
whatsoever.
Two comments
168. Before parting with these appeals, we would like to make
two comments: Firstly, with regard to the manner in which the Union of
B India has handled the litigation. We find that by and large, very little or
scanty material was placed by the Union oflndia before the concerned
High Courts, particularly the Allahabad High Court. On the other hand,
several volumes of documents have been filed in this Court, though after
permission. Such a practice deserves discouragement and we do so.
c There are several reasons for this. It tends to degrade the importance of
proceedings in the High Court and could subsequently embarrass the
High Court which might inadvertently base its decision on insufficient
material resulting in the possibility of an incorrect decision which is liable
to be set aside. It might also cause serious prejudice to a litigant because
it is for the firsttime in this Court that the entire material is made available
D to a litigant placing him/her at a disadvantage in dealing with issues of
importance. It certainly places an unnecessary and totally avoidable
burden on this Court which is required to deal with the material as a
court of first instance. Under such circumstances this Court does not
have the benefit of the opinion of the High Court while dealing with an
E appeal. All in all therefore, for the better adjudication of disputes and for
the convenience of all concerned, it would be more appropriate for the
Union oflndia, as indeed for all litigants to place on record all the material
before the court of first instance, whether it is a district court or a High
Court. We need say no more on this subject.

F 169. Secondly, the learned Solicitor General specifically and
repeatedly requested us to comment on the grant of interim orders by
the High Courts in matters concerning economic issues and particularly
in matters pertaining to the sale of formulations at the retail price or
ceiling price fixed by the Central Government through notifications issued
under the DPCO. Certain interim orders were brought to our notice
G restraining coercive action against a manufacturer/formulator when a
price notification was under challenge. It is true that such an interim
order could have a huge impact on society.
170. Jn Cy11amide /11dia this Court expressed the view that an
interim order should not have the effect of staying the implementation of
H
UNION OF INDIA & ORS. v. M/S. CIPLA LTD. & ANR. 601
[MADAN B. LOKUR, J.]

a notification fixing the price of a formulation under the DPCO. That A
would be against public interest and, therefore, ought not to be made by
a Court unless it is satisfied that no public interest is going to be served.
This is what this Court had to say in paragraphs 3 7 and 3 8 of the Report:
"We notice that in all these matters, the High Court granted
stay ~,f implementation of the notifications fixing the B
maximum prices of bulk drugs and the retail prices of
formulations. We think that in matters of this nature, where
prices of essential commodities are fixed in order to maintain
or increase supply of the commodities or for securing the
equitabie distribution and availability at fair prices of the
commodity, it is not right that the court should make any c
interim order staying the implementation of the notification
fixing the prices. We consider that such orders are against
the public interest and ought not to be made by a court
unless the court is satisfied that no public interest is going
to be served. D

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."
E
171. Under these circumstances, we are clearly of the view that
in matters where public interest is involved, the Court ought to be
circumspect in granting any interim relief. The consequence ofan interim
order might be quite serious to society and consumers and might cause
damage to public interest and have a long term impact. We make it clear
that it is not our intention to suggest to any Court how and in what F
circumstances interim orders should or should not be passed but it is
certainly our intention to make it known to the Courts that the time has
come when it is necessary to be somewhat more circumspect while
granting an interim order in matters having financial or economic
implications.
G
I 72. We would also like to draw the attention to the Drug Policy,
I 994 which mentions that as far as the drug industry is concerned, there
are about 250 large units and about 8000 small scale units in operation.
These units produce about 350 bulk drugs, and as we have mentioned
above more than 2000 formulations. The Drug Policy, I 994 also mentions
H
602 SUPREME COURT REPORTS [2016] 7 S.C.R.

A that the production of bulk drugs in 1993-94 is in the region ofRs.1320
crores and for the same period the production of formulations is in the
region of Rs. 6900 crores. In other words, not only is the drug industry in
the country extremely large with heavy financial stakes but there is lot
at stake in it not only for the industry but also for the consumers. For
this reason, the Courts have to extremely cautious in interfering in any
B
manner whatsoever with the working of the drug industry. Any
interference by the Courts would have wide ranging repercussions not
only in commercial terms but also for the people of the country.
Conclusion
c 173. Our answer to the questions identified are as follows:
a. Whether the notification dated 13'h July, 1999 issued by the
Central Government under Paragraph 7 of the Drugs (Prices Control)
Order, 1995 prescribing the norms for conversion cost, packing charges
and process loss of raw materials (other than packing materials in
D conversion) and packing and process loss of packing materials in
packaging was issued mechanically and without any application of mind
or is it valid in law? Our answer to this is that the notification is valid and
that the notification was not issued mechanically or without any application
of mind.
E b. Whether the notifications dated J2•h July, 2000, J2•h July, 200 l,
12•h July, 2002 and J ]'h July, 2003 issued by the Central Government
under Paragraph 7 of the Drugs (Prices Control) Order, 1995 re-notifying
the norms prescribed on 13th July, 1999 were issued mechanically, without
any application of mind and without re-determining the norms every
year as required by the Drugs (Prices Control) Order, 1995 and are they
F valid in law? Our answer is that the notifications are valid and were not
issued mechanically or without any application of mind and that it was
not necessary to re-determine the norms every year.
c. Whether various notifications issued by the Central Government
fixing the retail price or ceiling price of formulations under Paragraphs 8
G and 9 (as the case may be) of the Drugs (Prices Control) Order, 1995
without determining the norm for cost of packing material as required by
Paragraph 7 of the Drugs (Prices Control) Order, 1995 are valid in law?
Our answer is in the affirmative.
d. Whether fixing the retail price of a formulation under Paragraph
H
UNION OF INDTA & ORS. v. M/S. CIPLA LTD. & ANR. 603
[MADAN B. LOKUR, J.]

8 of the Drugs (Prices Control) Order, 1995 without first fixing the sale A
price of a bulk drug under Paragraph 3 of the Drugs (Prices Control)
Order, 1995 utilized in the manufacture of a formulation is valid in law?
Our answer is in the affirmative.
174. In view of the above, the appeals filed by the Union oflndia
are allowed. The impugned judgments and orders are set aside. The B
appeals filed by Dr. Reddy's Laboratories Ltd. are dismissed. No costs.

Nidhi Jain Appeals disposed of.

c