IMPORTANT POINT
Scope of DC PO 1979 Para 7(2)(a).

JUDGMENT

H.L. Dattu, J. —

1) The issues that arise for our consideration and decision in this appeal are :-

i) Whether the Central Govt. was justified in issuing a demand based on Drug Prices fixed on 02.01.1989, instead of drug prices fixed on 20.11.1986.

ii) Whether the Central Government was justified in directing Glaxo India Ltd. (hereinafter referred to as, “Respondent- Company”) to deposit an amount of `71.21 crores in the Drug Prices Equalization Account (in short, “DPEA”).

iii) What is the effect of ‘supersession’ of a notification and when such supersession is made, would it have the prospective or retrospective effect.

Factual Background

2) The Respondent-Company is engaged in manufacture and sale of three bulk drugs, namely, Betamethasone Alcohol (B.A.), Betamethasone 17 valerate (B.V.) and Betamethasone di Sodium Phosphate (B.P.), and various formulations based on these bulk drugs. They were sold at the price that was declared by the Respondent-Company under the Drugs (Price Control) Order, 1970 [in short, “DPCO 1970”]. The Central Government promulgated the Drug (Price Control) Order, 1979, [in short, “DPCO 1979”], replacing DPCO 1970 which included the above mentioned bulk drugs in Schedule II to the order. The Central Government is vested with the power under Para 3(i) of DPCO 1979 to fix the maximum sale price of indigenously manufactured bulk drugs in First or Second Schedule by issuing a notification in the official gazette. Sub-Para 3(2) provides that while fixing the price of a bulk drug, the Government may take into account the average cost of production of such bulk drug manufactured by an efficient manufacturer and allow a reasonable return on net worth. Sub-Para 3(3) prohibits any person from selling a bulk drug at a price exceeding the price fixed under sub-para(1) and other local taxes, if any, payable.

3) In exercise of the powers so conferred, the Central Government had fixed the maximum price of the above mentioned bulk drugs vide its order dated 12.05.1981.

4) The Respondent-Company had called in question the legality and validity of the price fixation order dated 12.05.1981 before the High Court of Delhi in C.W.P No. 1551 of 1981, mainly on the ground that the price fixation order did not take into account the cost of production of bulk drugs as was required to be done. On 27.08.1981, the High Court passed an interim order staying the implementation of the bulk drug prices fixed as per order dated 12.05.1981 as well as the prices of the formulations from the said bulk drug, in view of the undertaking of the respondent company to maintain the prices of both bulk drugs and its formulations prior to the notification dated 12.05.1981. During the pendency of the proceedings, the High Court, by order dated 13.05.1982, directed the parties to explore the possibilities of a settlement, when it was brought to the notice of the High Court that the Respondent-Company has filed a review petition for review of the price fixation order dated 12.05.1981 passed by the Central Government in exercise of its power under Para 3(1) of DPCO 1979.

5) Pursuant to the said direction, the Respondent- Company made available the actual cost of production of bulk drugs to the Central Government and also requested for an oral hearing. After considering the material available on the record and also the oral submissions made, the Central Government re-fixed the price of the three bulk drugs mentioned above by an Order dated 20.11.1986 with retrospective effect from 12.05.1981. Aggrieved by the same, the Respondent-Company amended the relief claimed in the pending proceedings before the High Court.

6) The Division Bench of the High Court, by its judgment and order dated 31.08.1987, disposed of the writ petition. While doing so, the Court did not quash the impugned price fixation order dated 20.11.1986 (made after the first review) passed by the Central Government, but directed the Respondent-Company to file another review petit