The DPCO provisions do not impose a general liability on manufacturers to pay amounts over incomes or advantages they have not secured, and the obligation to deposit into the Equalization Account applies to formulators.

S. Ravindra Bhat, J.

1. The present appeal by the Central Government (described as such, or as the “Union Government”) impugns a judgment and order of a learned Single Judge by which the respondents’ writ petition challenging a demand made in terms of the Drugs (Prices Control) Order (DPCO) of 1979 was allowed.

2. The Respondent No.1 is a manufacturer of various drugs and pharmaceutical products, including streptomycin and Respondent No.2 is its Director. The respondents here-in, contended before the learned Single Judge that a manufacturer of a bulk drug like it cannot be compelled to sell its product only at the pooled price and not for lower price. It also argued that as manufacturer of bulk drugs it could not be compelled to deposit into the Drug Prices Equalisation Account excess amounts constituting the difference between the pooled price and the retention price particularly when such excess amount is not realized if the manufacturer sells the bulk drug at retention price.

3. Clause 3 of the DPCO empowered the Central Government to, with a view to regulating the equitable distribution of an indigenously manufactured bulk drug specified in the First Schedule or the Second Schedule and making it available at a fair price subject to Rule 3(2) and after making such inquiry as is deemed fit, “………….fix, from time to time, by notification in the Official Gazette, the maximum price at which such bulk drug shall be sold……………..” Rule 3 (2) states that while fixing bulk drug prices, 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.” Clause 4 empowered the Central Government to, notwithstanding Clause 3, if it felt it necessary to increase production of indigenously manufactured bulk drugs under the First or Second Schedule, fix (a) a retention price for the bulk drug and (b) a common sale price for such bulk drug, taking into account the weighted average of the retention price fixed under Clause (a). Clause 7 states that where a bulk drug is indigenously manufactured as well as imported, the Central Government can, after making necessary adjustments, fix “(a) retention prices for individual manufacturers, importers or distributors of such bulk drugs” or (b) “a pooled price for the sale of such bulk drugs.” Clause 7 (2) read as follows:

“(2) Where a manufacturer of formulations utilises in his formulations any bulk drug, either from his own production or procured by him from any other source, the price of such bulk drug being lower than the price allowed to him in the price of his formulations, the Government may require such manufacturer --

(a) to deposit into the Drug Prices Equalisation Account referred to in paragraph 17 the excess amount to be determined by the Government; or

(b) to sell the formulations at such prices as may be fixed by the Government..”

4. On 02.04.1979 the Central Government issued an order fixing the pooled price for streptomycin and also the retention price for the writ petitioners (respondents herein) and other manufacturers. The pooled price for streptomycin was fixed at Rs.475/- per k.g. and retention price was fixed at Rs.449.71/- per k.g. for first respondent and Rs.498/- for other manufacturers. The Central Government by circular dated 19.11.1979 required further information in view of the representation from the manufacturers of drugs and pharmaceuticals for granting an immediate price increase for bulk drug and formulation in order to compensate for the rapid increase in the price of input materials, particularly petroleum based products. It was claimed – by the respondents herein that w.e.f. 01.07.1979 they had started selling all the streptomycin manufactured by them to M/s. Sarabhai Chemicals, a division of Ambalal Sarabhai at the rate of Rs.449.71/- per k.g. which was retention price allowed to the respondents herein, by order dated 02.04.1979. Sa