Holding

The exemption notification applies only to the drug manufactured up to 31 October 1999 and cannot be invoked for sales made after that date.

Summary

The Union of India challenged a Delhi High Court decision that had upheld Ranbaxy Laboratories' claim of exemption from the Drugs (Price Control) Order, 1995 for its bulk drug Pentazocine. The exemption was granted by a government notification dated 29 August 1995 and was said to expire on 31 October 1999. The issue was whether the exemption applied only to drugs manufactured up to that date or also to those manufactured and sold thereafter, thereby allowing Ranbaxy to sell at any price after expiry. The Supreme Court applied the doctrine of purposive construction, holding that the notification exempted only the drug manufactured by the company and that the exemption could not be claimed beyond the manufacturing cut‑off date. It emphasized the practical link between manufacture and marketing and warned against an absurd result if the exemption were extended to post‑expiry sales. Consequently, the Court dismissed the Union's appeal, thereby affirming the High Court's interpretation that the exemption did not extend beyond 31 October 1999.

Issues considered

Does the exemption notification dated 29 August 1995 apply to drugs manufactured up to 31 October 1999 only, or does it also cover drugs manufactured and sold after that date?
Can the manufacturer claim exemption from price control for sales made after the expiry of the exemption period?

Legislation cited

Drugs and Cosmetics Act, 1940
Essential Commodities Act, 1955s. 3, s. 3(2)(c)

Subjects

price controlexemption notificationpurposive constructionessential commoditiesbulk drugmanufacture vs salestatutory interpretation

Judgment

[2008] 8 S.C.R. 315

-~ ...I.
UNION OF INDIA A
v.
M/S. RANBAXY LABORATORIES LTD. AND OTHERS
(Civil Appeal No. 3497 of 2008)
MAY 12, 2008
B
[S.B. SINHA AND V.S. SIRPURKAR, JJ.]
~
Drugs (Price Control) Order, 1995:
Paragraphs 8(6), 23 and 25 - Scheduled bulk drug -
Exemption from operation of Order - Notification dated c
29. 8. 1995 - HELD: By reason of Notification the drug which
was manufactured by company has been exempted and area
of exemption is operation of price control - They have a direct
nexus and are co- related with each other - If the Company
was entitled to benefit of notification ti/131.1.1979, some time D
'
---~
)\
would be necessary for it to market the same - Essential Com-
modifies Act, 1955 - s. 3 - Interpretation of Statutes - Purpo-
sive construction.
Respondent no. 1, a pharmaceutical company was
engaged in manufacture of bulk drug including Pentazo- E
cine in the formulation of Pentazocine injection. Sale and
marketing of the said drug was controlled by the Drugs
(Price Control) Order, 1995 issued by the Central Govern-
,, ment in exercise of its powers u/s 3 of the Essential Com-
~
modities Act, 1955. By Notification dated 29.8.1995 the F
drug in question was exempted from operation of the
price control stipulated in the 1995 Order. The exemption
granted in favour of respondent no. 1 expired on
31.10.1999. Respondent no. 1, by notice dated 29.4.2002
was required to deposit Rs. 2,59,76,070/- with 15% inter- G
.... est. The writ petition filed by respondent no. 1 was dis-
missed by Single Judge, but its Letters Patent Appeal was
allowed by the Division Bench of the High Court.

315 H
316 SUPREME COURT REPORTS [2008] 8 S.C.R.

A In the instant appeal filed by the Union of India, it was
~
-
contended for the appellant that the High Court failed to take
into consideration that the 1995 Order was concerned with
distribution and not manufacture and as a manufacturer,
respondent no. 1 could sell its products since exemption
B was in regard to sale only and not to manufacture; and that
after 31.10.1999 respondent no. 1 was at liberty to sell the
drug at any price and not at the stipulated one. .,..
The question for consideration before the Court was:
whether the exemption Notification dated 29.8.1995 would
c apply in respect of drugs which were manufactured upto
31st October, 1999 or manufactured and sold upto the said
date.
Dismissing the appeal, the Court
D HELD: 1.1 The principle of purposive construction )( ,>-
may be applied so as to give full effect to the exemption
notification. The exemption notification must be construed
to be a workable one. The Court while construing an ex-
emption notification cannot lose sight of the ground re-
E alities including the process of marketing and sale. In
view of Clause (6) of Paragraph 8 of the Drugs (Price Con-
trol) Order, 1995 what is prohibited is market of a new pack
without obtaining prior approval of its price from the Gov-
ernment. The exemption Notification dated 29th August,
•
F 1995 is clear and unambiguous. By reason thereof what i
has been exempted is the drug which was manufactured
,..
by the company and the area of exemption is from the
operation of the price control. They have a direct nexus.
They are co-related with each other. [para 16,25 and 27]
[327-D, 325-E,F, 322-C,D,E]
G
New India Assurance Co. Ltd.. vs. Nusli Neville Wadia
and another 2007 (14) SCALE 556; Oriental Insurance Co.
._ .
Ltd. vs Brij Mohan and others 2007 (7) Scale 753 - relied on.
1.2 It is true that 1995 Order was to control the price
H
~

'

UNION OF INDIAV. M/S. RANBAXY 317
LABORATORIES LTD. AND OTHERS
- .J.
and not the manufacture. But there cannot be any doubt A
that the price is that of a manufactured drug. Process of
marketing the drug as also the maximum price which can
be charged have direct relation with manufacture and also
the date thereof. The wrapper/foil/containers in which the
drug is marketed contains several informations for the B
general public, one of them being the date of manufac-
;( ture and the retail price. Not only in terms of the Essential
Commodities Act, 1955 but also under various other stat-
utes applicable several informations are required to be
furnished. If it is held that the first respondent was bound c
not only to manufacture but also to sell at a price upto
31s1 October, 1999, the same would lead to an absurdity.
Such an anomaly and absurdity must be avoided. [para
23 and 26] (325-B-C, 326.D]
1.3 While construing an exemption notification not D
" )4
only a pragmatic view is requ!red to be taken but also the
practical aspect of it. A manufacturer would not know as
to when the drug would be sold. It has no control over it.
Its control over the drug would end when it is despatched
to the distributor. All statutes have to be considered in E
the light of the object and purport of the Act. If the first
respondent was entitled to avail the benefit of the exemp-
ti on notification till the midnight of 31st October, 1999,
\"
sometime would be necessary for it to market the same.
.it There must be some time lag between the period the drug F
is manufactured and the actual sale by a retail dealer to
the customer. Applying the principle of doctrine of purpo-
sive construction, meaningful purpose could be achieved
only if such construction of the notification is adopted
and no other. [para 23-25] 325,G; 326,A; 325,D;
G
.. -+ Union of India vs. Cynamide India Ltd. (1987) 2 SCC
720; Prag Ince & Oil Mills vs. Union of India (1978) 3 SCC
459 ;and Sree Meenakshi Mills vs. Union of India (1973) 1
sec 129 - held inapplicable.
H
318 SUPREME COURT REPORTS [2008] 8 S.C.R.

A Aharon Barak, Purposive Interpretation in Law, (2007)
at pg. 87)
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 3497
of 2008
B From the final Judgment and Order dated 19.12.2005 of
the High Court of Delhi at New Delhi in LP.A. No. 675 of 2004
D. Mohta, D.S. Mahra and V.K. Verma for the Appellant.
S. Ganesh, Ashu~osh Khaitan, Tania Sharma, Umesh
c Kumar Khaitan, U.A. Rana and Abhishek Rao (for M/s. Gagrat
& Co.) for the Respondents.
The Judgment ot the Court was delivered by
S.B. SINHA, J. 1. Leave granted.
D 2. First respondent is a pharmaceutical company and is
engaged in the manufacture, inter 2!ia, of the bulk drug Penta-
zocine in the formulation of Pentazocine injection with the brand
name 'Fortwin'. Sale and marketing of the said drug is con-
trolled by the Drugs (Price Control) Order, 1995 (1995 Order).
E The said order has been made by the Central Government in
exercise of its powers under Section 3 of the Essential Com-
modities Act, 1955 (1955 Act). We may notice some interpre-
tation clauses in the 1955Act, which are as under:-
"2.(a) "bulk drug" means any pharmaceutical, chemical,
F biological or plant product including its salts, esters, stereo-
isomers and derivatives, conforming to pharmacopoeia!
or other standards specified in the Second Schedule to
the Drugs and Cosmetics Act, 1940 (23 of 1940), and
which is used as such or as an ingredient in any formulation;
G
2.(c) "ceiling price" means a price fixed by the Government
for scheduled formulation in accordance with the provisions
of para. 9.
2(f) "drug" includes-
H
UNION OF INDIA V. M/S. RANBAXY 319
LABORATORIES LTD. AND OTHERS [S.B. SINHA, J.]
... _...
(i) A
(ii)
(iii) bulk drugs and formulations;
2(1) "manufacture" in relation to any drug, includes any
process or part of a process for making, altering, finishing,
packing, labelling, breaking or otherwise treating or B

.. adapting any drugs with a view to its sale and distribution,
but does not include the compounding or dispensing of
any drug or the packing of any drug in the ordinary course
of retail business, and "to manufacture" shall be construed
accordingly; c
2(r) "price list" means a price list referred to in paragraphs
14 and 15 and includes a supplementary price list;
2(s) "retail price" means the retail price of a drug arrived
at or fixed in accordance with the provisions of this Order D
·- ,JI
and includes a ceiling price;"
3. The drug in question is one of the scheduled bulk drugs
being at SI. No.43 in the First Schedule.
4. The Central Government in exercise of its powers con- E
ferred upon it by paragraph 23 of the 1995 Order issued guide-
lines for the purpose of grant of exemption in terms of para-
graph 25 specifying that a manufacturer who had been given a
., price exemption for bulk drug should submit an application in
~
prescribed forms for fixation of price of suck bulk drug and for- F
mulation four months before the expiry of the period of the ex-
emption. It was furthermore stipulated :-
"However, if there is an existing notified price for bulk drug
or ceiling price for formulations, the manufacturer shall
follow the same on the expiry of the exemption and obtain G
... ~
price approval for non-ceiling packs of formulation (s)
based on that bulk drug."
5. A similar provision has been made for grant of exemp-
tiqns in respect of New Delivery System, in terms whereof a
H
320 SUPREME COURT REPORTS [2008] 8 S.C.R.

...
A manufacturer is required, where there is an existing notified "'"
price, to follow the same on the expiry of the exemption.
6. The exemption granted in favour of the first respondent
had expired on 31 •1 October, 1999.

B First respondent was asked to show cause as to why an
amount of Rs.2,59,76,070/- should not be recovered from it and
why action should not be taken under paragraphs 21 and 24 of .,.
1995 Order read with Section 10 of the 1955 Act by a notice
dated 291h April, 2002. In respQnse thereto the first respondent
c inter alia contended that it had not overcharged price from any
customer and no amount towards any alleged over charge was
payable by it. It was furt~ermore contended that the company
had furnished all the informations, as and when asked for by the
prescribed authorities of the appellant.
D 7. As the said reply was found to be unsatisfactory, the
first respondent was asked to depcsit the alleged over charged
)(
-
amount with interest@ 15% per annum as provided under Sec-
tion 7A of the 1955 Act.
8. A writ petition was filed thereagainst by the first respon-
E dent before the Delhi High Court. The said writ petition was
dismissed by a learned Single Judge of the said High Court by
an order dated 201h May, 2004.
9. A Letters Patent Appeal was filed thereagainst which ..
F has been allowed by a Division Bench of the said Court by rea- ,l

son of the impugned judgment and order dated 191h December,
2005.
The High Court opined that the exemption Notification
dated 29 1h August, 1995 clearly show that the same related to
G drugs manufactured by 31•1 October, 1999 and thus the same
would apply even if the drugs have been sold after the said date. .. ..
10. Mr. Gopal Subramaniam, learned Additional Solicitor
General of India appering on behalf of the appellant, would sub-
mit :-
H
UNION OF INDIA V. M/S. RANBAXY 321
LABORATORIES LTD. AND OTHERS [S.B. SINHA, J.]
_, .. i) That the High Court committed a serious error A
in passing the impugned judgment in so far as
it failed to take into consideration that 1995
Order is concerned with distribution and hot
manufacture.
ii) An exemption Notification must be strictly B
construed and so construed, it must be held
Aj that no benefit could be claimed by the first
respondent beyond the period of 31 51 October,
1999 as by reason of the said exemption
Notification it could sell the drug at any price c
and not at the stipulated one and thus, as soon
as the period of exemption expired, the price
provided for under the 1999 Order was required
to be charged.
D
)< iii) As a manufacturer the first respondent could
"
sell its products but the exemption was in regard
to sale only and not to manufacturer, the
impugned judgment cannot be sustained.
. 11. Mr. S. Ganesh, learned Senior Counsel, appearing on E
behalf of the first respondent, on the other hand, would submit
that exemption Notification must be given a purposive meaning
and so construed, the impugned judgment is wholly unassail-
able
""'
).; 12. Admittedly the drug in question is an essential com- F
modity within the meaning of the provisions of 1955 Act.
13. Section 3(2)(c) of 1955Act empowers the Central Gov-
ernment to make an order providing for controlling the price at
which the essential commodity may be bought or sold.
G

-· .. 14. Exemption clause contained in paragraph 25 of the
1995 Order vis-a-vis Notification dated 29th August, 1995 must
be construed having regard to the object and purport, which
1995 Order seeks to achieve. A scheduled drug contains de-
tails not only of the maximum retail price but also the date of H
322 SUPREME COURT REPORTS [2008] 8 S.C.R.

A manufacture. The price fixed in terms of paragraph 9 of the 1995
Order shall be the ceiling price. Paragraph 3(1) empowers fix-
ing of the maximum sale price at which the same can be sold.
The factors which were required to be considered therefore,
however, are not required to be noticed.
B 15. In terms of clause 3 of paragraph 3 of 1995 Order, a
statutory prohibition had been created in terms whereof nobody
could sell the bulk price exceeding the maximum sale price fixed
under paragraph 1. Clause 2 of paragraph 8 empowers the au-
thority fix retail price of scheduled formulations in terms whereof
C revision in the price is permissible.
16. Clause 6 of paragraph 8 of 1995 Order reads as un-
der:-
(6) No manufacturer or importer shall market a new pack,
D if not covered under sub-paragraph 3 of para 9, or a new
formulation or a new dosage form of his existing scheduled
formulation without obtaining the prior approval of its price
from the Government.
Thus, what is prohibited is market of a new pack without
E obtaining the prior approval of its price from the Government.
Paragraph 9 empowers the authority to fix ceiling price of
scheduled formulations.
Paragraph 23 provides for the power of the Central Gov-
F ernment to issue guidelines and directions. Such guidelines and
directions, however, must be consistent with the provisions of
the Order.
17. What is, thus, necessary to be taken into consider-
G ation is the power for exempting and the Notification issued
therefore by the Central Government. The power of exemption
is contained In clause 25 of he Order, which reads as under :- .. ·-
"25. Pqwerto exempt.-(1) Government may, having regard
to tl}e factors mentioned in sub-paragraph (2) and subject
H to such conditions as it may specify by an order in the
UNION OF INDIA V. M/S. RANBAXY 323
LABORATORIES LTD. AND OTHERS [S.B. SINHA, J.]
-'
""'
Official Gazette, exempt any manufacturer from the A
operation of all or any of the provisions of this Order.
(2) While granting exemption under sub-paragraph (1 ), the
Government shall have regard to all or any of the following fac-
tors,-
B
_.. (a) number of workers employed:
(b) amount of capital invested;

(c) range/group and type of products manufactured;
a) sales turnover; c
b)
c) production of a new drug which has not been
produced elsewhere, if developed through
<" )<
indigenous research and development." D

18. The exemptionNotification dated 29th August, 1995,
reads thus:-
"ORDER
E
S.O. No./ 7153 (E), in exercise of the powers conferred by
sub-paragraph (1) of Paragraph 25 of the Dugs (Price
Control) Order, 1995, the Central Government having
regard to the factors specified in the clause(e) of sub-
.i. paragraph (2) of paragraph 25 of the said order and also
having been satisfied for the need to do so in the public F
interest hereby exempts the bulk drug and formulations
based thereupon specified in column 2 of the Table bellow
which is manufactured by the company specified in the
corresponding entry in column 3 from the operation of
price control stipulated in sub-paragraph (1) of paragraph G
.j 'I 3, sub paragraph (1) of paragraph 8 and sub-paragraph
(1) of paragraph 9 of the said order, upto the period as
indicated in column 4 thereof.
TABLE
H
324 SUPREME COURT REPORTS [2008) 8 S.C.R.

A S.No. Name of the Name of the Period upto which
Product Company the exemption is
granted
1 2 3 4
B 1 Pentazocine M/s.
and its formu- Ranbaxy
31-10-1999
lations Labo
ratories Ltd.

c Sd/-
(K. MULALIDHARAN)
DESK OFFICER "
19. For issuance of an exemption Notification the Central
D
Government is required to apply its mind. The factors which are JI. < ,
relevant, must be taken into consideration as provided for un-
der paragraph 2 of clause 25 of the Order.
20. The relevant considerations inter alia are the sales turn-
E over as also production of a new drug which was not produced
elsewhere, if developed through indigenous research and de-
velopment.
21. Pentazocine is used for a patient suffering from trau-
matic pain. The Central Government must be held to have ap-
F plied its mind before issuing the exemption notification.
•
22. What must have been taken into consideration for that
purpose is that respondent No.1 fulfilled the requisite criteria.
The area of exemption is from the operation of the price con-
trol. Such exemption admittedly had been granted upto 31 •1 Oc-
G
tober, 1999. Indisputably the Central Government had the power
to extend the period of exemption. It could have granted further
I> "·
exemption subject to any condition.
23. The short question which arises for our consideration
H is as to whether the exemption Notification would apply in re-
UNION OF INDIA V. MIS. RANBAXY 325
LABORATORIES LTD. AND OTHERS [S.B. SINHA, J.]
..., .A .

spect of drugs which were manufactured upto 31st October, 1999 A
or manufactured and sold upto the said date. The exemption
granted is in respect of what. It is in respect of a drug manufac-
tured by a company. What is marketed for sale is the drug manu-
factured. Manufacture of a drug is controlled by a different stat-
ute, namely the Drugs and Cosmetics Act, 1940. Process of B
marketing the drug as also the maximum price which can be
charged have direct relation with manufacture and also the date
thereof. The wrapper/foil/containers in which the drug is mar-
keted contains several informations for the general public; or.e
of them being the date of manufacture and the retail price. Vari- c
ous other informations are also required to be furnished.
24. The contention of learned Additional Solicitor General
that the drug could be manufactured upto 31st October, 1999
but on and from 1st November, 1999 it could be sold only at the
)i price specified in the order, in our opinion, cannot be accepted. D
"' If the first respondent was entitled to avail the benefit of the ex-
emption notification till the midnight of 31st October, 1979, some-
time would be necessary for it to market the same. There must
be some time lag between the period the drug is manufactured
and the actual sale by a retail dealer to the customer. E
25. The Court while construing an exemption notification
cannot lose sight of the ground realities inclduing the process
.., of marketing and sale. The exemption order dated 291h August,
.... 1995 is clear and unambiguous. By reason thereof what has
been exempted is the drug which was manufactured by the com- F
pany and the area of exemption is from the operation of the
price control. They have a direct nexus. They are co related with
each other. While construing an exemption notification not only
a pragmatic view is required to be taken but also the practical
aspect of it. A manufacturer would not know as to when the drug G
.> ... would be sold. It has no control over it. Its control over the drug
would end when it is despatched to the distributor. The distribu-
tor may despatch it to the whole seller. A few others may deal
with the same before it reaches the hands of the retailer. The
manufacturer cannot supeNise or oversee as to how others H
326 SUPREME COURT REPORTS [2008] 8 S.C.R.

A would be dealing with its product. All statutes have to be con- ... ,_
sidered in light of the object and purport of the Act. Thus, the
decision relied upon by the learned Additional Solicitor Gen-
eral in Union of India vs. Cynamide India Ltd. : (1987) 2 SCC
720; Prag Ince & Oil Mills vs. Union of India: (1978) 3 SCC
B 459 and Sree Meenakshi Mills vs. Union of India : ( 1973) 1
sec 129 will have no applicability.
26. It is true that 1995 Order was to control the price and ...
not the manufacture. But there cannot be any doubt that the price
is that of a manufactured drug.
c
Not only in terms of the Essential Commodities Act, 1955
but also under various others, for example Customs and Cen-
tral Excise Act and Weights and Measures Act (if applicable)
several informations are required to be furnished. If the submis-
sion of Mr. Gopal Subramaniam that the first respondent was
D
bound not only to manufacture but also to sell at a price upto
)( .,
31•1 October, 1999 is correct, the same in our opinion lead to
an absurdity. Such an anomaly and absurdity must be avoided.
27. Learned counsel wants us to apply the principle of pur-
E posive construction. It may be applied so as to give full effect to
the exemption notification. The exemption notification must be
construed to be a workable one.
In New India Assurance Co. Ltd.. vs. Nusli Neville Wadia
and another: 2007 (14) SCALE 556 this Court opined :- ....
F
"51. Barak in his exhaustive work on 'Purposive ""
Construction' explains various meanings attributed to the
term "purpose". It would be in the fitness of discussion to
refer to Purposive Construction in Barak's words:
G "Hart and Sachs also appear to treat "purpose"
as a subjective concept. I say "appear"
because, although Hart and Sachs claim that .....
the interpreter should imagine himself or herself
in the legislator's shoes, they introduce two
H elements of objectivity: First, the interpreter
UNION OF INDIA V. MIS. RANBAXY 327
LABORATORIES LTD. AND OTHERS [S.S. SINHA, J.]
... " should assume that the legislature is composed A
of reasonable people seeking to achieve
reasonable goals in a reasonable manner; and
second, the interpreter should accept the non-
rebuttable presumption that members of the
legislative body sought to fulfill their B
constitutional duties in good faith. This
formulation allows the interpreter to inquire not
-'I
into the subjective intent of the author, but rather
the intent the author would have had, had he or
she acted reasonably." c
(Aharon Barak, Purposive Interpretation in Law, (2007)
at pg. 87)
While referring to its decision in Oriental Insurance Co.
Ltd. vs. Brij Mohan and others : 2007 (7) Scale 753 it applied
D
ll
the doctrine of purposive construction. Applying the principle of
~

doctrine of purposive construc·iiOn, we are of the opinion that
meaningful purpose could be achieved only if the construction
of the notification as indicated hereinbefore is adopted and no
other.
E
28. There is no merit in this appeal which fails and is ac-
cordingly dismissed with costs. Counsel's fee assessed at
Rs.50,000/-
R.P. Appeal dismissed.
"" ,.,

' , . ,_. "' . _:;f"'· •" . ~
I
-
" ...
.,,..,._

, .. ~-":.
~