W.P.(C)/1527/2005 of KEMWELL BIOPHARMA PVT. LTD & ANR. Vs UOI & ANR.

IN THE HIGH COURT OF DELHI AT NEW DELHI

+WP (C) 39/2005

GLAXO SMITHKLINE PHARMA. LTD...... PetitionerThrough:Mr.U.A.RanaandMr.Himanshu Mehta, Advs.

versus

UOI & ANR.....RespondentsThrough:Mr. Bhagvan Swarup Shukla,CGSC for UOI

+WP (C) 1527/2005

KEMWELL BIOPHARMA PVT. LTD. & ANR ...... PetitionersThrough:Mr.U.A.RanaandMr.Himanshu Mehta, Advs.

versus

UOI & ANR....RespondentsThrough:Mr. Bhagvan Swarup Shukla,CGSC for UOI

Ms. Pragya Barsaiyan, Adv. for Mr. GautamNarayan, ASC for GNCTD

CORAM:HON'BLE MR. JUSTICE C. HARI SHANKAR

J U M N T%26.12.2023

WP (C) 39/2005

1.Thiswritpetition,institutedunder Article226oftheConstitution of India by GlaxoSmithKline Pharmaceuticals Ltd,

assails communications dated 5 October 2004 and 17 December 2004,issued to the petitioner by the National Pharmaceutical PricingAuthority (NPPA) (impleaded as Respondent 2) in exercise of thepowers conferred by Para 13[1]of the Drug (Price Control) Order 1995(“the DPCO 1995”).

2.Thecommunication dated5October 2004directedthepetitioner to deposit ₹ 54,844,247/– with the Department of Chemicals & Petrochemicals (Respondent 1).The subsequent order dated 17December 2004 rejected the petitioner’s representation against theorder dated 5 October 2004 and reiterated the demand of ₹ 5,59,32,906/–.

3.The demand of ₹ 5,59,32,906/- consists of principal amount of ₹ 4,35,46,347/- and ₹ 1,23,86,559/– towards interest. By orders passed by this Court in the present proceedings, enforcement of thedemand was stayed, conditional on the petitioner depositing theprincipal amount with this Court and furnishing bank guarantee for theinterest.

4.The writ petition has been heard finally.Mr. U.A. Ranaappeared for the petitioner and Mr. Bhagwan Swarup Shukla, Ld.Central Government Standing Counsel (CGSC) represented therespondents.

1 13.Power to recover overcharged amount – Notwithstanding anything contained in this order, theGovernment shall by notice, require the manufacturers, importers or distributors, as the case may be, todeposit the amount accrued due to the charging of prices higher than those fixed or notified by theGovernment under the provisions of Drugs (Prices Control) Order, 1987 and under the provisions of thisOrder.Government shall by notice, require the manufacturers, importers or distributors, as the case may be, todeposit the amount accrued due to the charging of prices higher than those fixed or notified by theGovernment under the provisions of Drugs (Prices Control) Order, 1987 and under the provisions of thisOrder.

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5.The said petition was heard along with W.P. (C) 1527/2005(Kemwell Biopharma Pvt. Ltd. v.U.O.I.).As the issue incontroversy in both the petitions is the same, substantive judgementis being passed in this petition, which would be applied, mutatismutandis, to WP (C) 1527/2005 by way of separate order.

Facts

6.In exercise of the powers conferred by Para 9(1)[2]of the DPCO,the NPPA, by Notification dated 16 November 1999, fixed price of ₹ 68.50 as the price at which – inhalers containing Salbutamol - as oneof the scheduled formulations which found place in the First Scheduleto the Notification – could be sold.

7.ThepetitionerassertsthattheyneveroverchargedforSalbutamol, and abided by the Notification dated 16 November 1999.

8.Certain other manufacturers challenged the inclusion of sevenbulk drugs, including Salbutamol, in the First Schedule to the DPCO1995 in batch of writ petitions before the High Court of Bombay.By judgement dated 31 August 2001[3], the High Court held that thedrugs in question, including salbutamol, did not fall within thepurview of the DPCO and that, therefore, the NPPA could not have

2 9.Power to fix ceiling price of Scheduled formulations.–(1)Notwithstanding anything contained in this Order, the Government may, from time totime, by notification in the Official Gazette, fix ceiling price of Scheduled formulation inaccordance with the formula laid down in para 7, keeping in view the cost of efficiency, or both, ofmajor manufacturers of such formulations and such price shall operate as the ceiling sale price forall such facts including those sold under generic name and for every manufacturer of suchformulations.(1)Notwithstanding anything contained in this Order, the Government may, from time totime, by notification in the Official Gazette, fix ceiling price of Scheduled formulation inaccordance with the formula laid down in para 7, keeping in view the cost of efficiency, or both, ofmajor manufacturers of such formulations and such price shall operate as the ceiling sale price forall such facts including those sold under generic name and for every manufacturer of suchformulations.

3 Cipla Ltd v. U.O.I., (2002) 2 Mah LJ 631

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fixed any price for sale of the drugs under the DPCO. As such, all thewrit petitions were allowed to the extent of the challenge to theinclusion of the said seven drugs, including salbutamol, in the firstSchedule to the DPCO. The notices issued to the petitioners beforethe High Court, demanding overcharged amounts from them werealso, therefore, quashed and set aside.

9.The impugned communication dated 5 October 2004 allegedthat the petitioner had violated the provisions of the DPCO 1995 bycharging higher price, for sale of Ventorlin inhaler (Salbutamol 100mcg) (“Ventorlin”), than the price fixed by the NPPA on 16 November1999. The petitioner, as per the communication, was charging ₹ 86.36 and ₹ 94.89, as against the price fixed by the DPCO 1995 which was ₹ 68.50. Thus, during the period March 2002 to August 2003, it wasalleged that the petitioner had overcharged consumers by an amountof ₹ 4,35,46,347/–. The communication, therefore, called upon the petitioner to deposit the said amount along with interest of ₹ 1,12,97,900/– on or before 5 November 2004. The demand, it wasclarified, was only provisional and subject to enhancement, if anyfurther amount was found due from the petitioner.

Rival Contentions

10.Mr. Rana, learned Counsel for the petitioner, submits that, by itsjudgment in Cipla v. UOI[4], the Division Bench of the High Court ofBombay clearly struck down the DPCO 1995 to the extent it includedthe seven drugs forming subject matter of consideration before the

4 2001 SCC OnLine Bom 683

Court, including Salbutamol, in the First Schedule to the DPCO 1995.Resultantly, held the High Court, the price of Salbutamol could not besubjected to control under the DPCO 1995. The decision waschallenged by the Union of India by way of SLP. Leave was grantedby the Supreme Court on 3 May 2002, without staying the operationof the judgment of the High Court. Subsequently, by judgment dated1 August 2003 in Secretary, Ministry of Chemical & Fertilizers v.CIPLA Ltd.[5], the Supreme Court set aside the judgment of the HighCourt and remanded the matter for de novo consideration. The periodof dispute, for which the demand has been raised by the respondent, isMarch 2002 to August 2003. This was the period during which thejudgment of the High Court of Bombay remained in operation. It wasonly for this period that the petitioner has increased the price of itsSalbutamol.Consequent on the Supreme Court setting aside thejudgment of the High Court on 1 August 2003, the petitioner onceagain reduced the price of Salbutamol to bring it in accordance withthe DPCO 1995.

11.Mr. Rana submitted that it could not, therefore, be said that thePetitioner had acted in violation of the DPCO as, during the period ofdemand, the inclusion of Salbutamol under the First Schedule to theDPCO stood set aside by the High Court of Bombay.

12.Mr. Rana has relied, in this context, on Section 7-A(1)[6]of theEssential Commodities Act 1955 (the ECA). He submits that any

5 (2003) 7 SCC 16 7-A.Power of Central Government to recover certain amounts as arrears of land revenue. –(1)Where any person, liable to –

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recovery on the basis of the DPCO 1995 has to abide by theprovisions of the ECA. Inasmuch as, during the period of demand, noamount was payable by the Petitioner under the DPCO 1995, it couldnot be said that the petitioner was in default of payment as wouldjustify recovery from it. In the absence of sustainable demand, therecould be no question of recovery of interest under Section 7-A either.

13.Moreover, submits Mr. Rana, the default, if any, would ariseonly on the failure of the petitioner to deposit the amount claimed bythe NPPA on the expiry of the period allowed for such deposit in theimpugned communications. He relies, for this purpose, on thejudgment of the Division Bench of High Court of Allahabad in T.C.Healthcare Pvt. Ltd. v. U.O.I[7].

14.T.C. Healthcare is also cited by Mr. Rana for the propositionthat, as Para 19[8]of the DPCO 1995 obliges manufacturer to sellscheduled formulations to retailers at the notified retail price less 16%thereof in case of scheduled drugs, the said 16%, which constitutes

(a)pay any amount in pursuance of any order made under Section 3, or(b)deposit any amount to the credit of any Account or Fund constituted by or inpursuance of any order made under that section,(b)deposit any amount to the credit of any Account or Fund constituted by or inpursuance of any order made under that section,

makes any default in paying or depositing the whole or any part of such amount, the amount inrespect of which such default has been made shall whether such order was made before or after thecommencement of the Essential Commodities (Amendment) Act, 1984, and whether the liability ofsuch person to pay or deposit such amount arose before or after such commencement] berecoverable by Government together with simple interest due thereon computed at the rateof fifteen per cent per annum from the date of such default to the date of recovery of such amount,as an arrear of land revenue or as public demand.respect of which such default has been made shall whether such order was made before or after thecommencement of the Essential Commodities (Amendment) Act, 1984, and whether the liability ofsuch person to pay or deposit such amount arose before or after such commencement] berecoverable by Government together with simple interest due thereon computed at the rateof fifteen per cent per annum from the date of such default to the date of recovery of such amount,as an arrear of land revenue or as public demand.

7 2010 SCC OnLine All 834(DB)8 19.Price of formulations sold to the dealer, -(1)A manufacturer, distributor or wholesaler shall sell formulation to retailer, unlessotherwise permitted under the provisions of this Order or any order made thereunder, at priceequal to the retail price, as specified by an order or notified by the Government, (excluding exciseduty, if any) minus sixteen per cent thereof in the case of Scheduled drugs.

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trade margin, cannot be said to have accrued to the manufacturer and,therefore, could not be included in the alleged over-charged amount.

15.Mr. Rana submits that the decision in T.C. Healthcare waschallenged by the Union of India before the Supreme Court whichdismissed the SLP on merits vide judgment dated 15 November 2019[9],against which review petition and curative petition were preferred,which were both dismissed.

16.Mr. Rana points out that, in para 20 of its judgment, theSupreme Court held that the amount over-charged would have to bedecided by taking into account the price charged by the manufacturerto the next dealer.

17.Responding to the submissions of Mr. Rana, Mr. BhagwanSwarup Shukla, learned CGSC, submits that the judgment of theSupremeCourtinCiplaoperatedretrospectivelyandnotprospectively. He invites attention to para 11 of the decision of thejudgment which allowed the appeal of the Union of India and grantedliberty to the statutory authorities to recover 50% of the over-chargedamounts pending fresh determination by the High Court.Thus, hesubmits, the petitioner cannot entirely escape liability by relying onthe judgment of the High Court of Bombay. He also relies on thejudgment of the Supreme Court in Kunhayammed v. the State ofKerala[10]to contend that the judgment of the High Court of Bombay

9 T.C. Healthcare v. U.O.I, (2020) 15 SCC 11710 (2000) 6 SCC 359

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has merged in the judgment of the Supreme Court and could not,therefore, be relied upon.

18.Incidentally, Mr. Shukla has also sought to advance thesomewhat extreme contention that, even if the Supreme Court did notstay the judgment of the High Court of Bombay the petitioner was notwithin its rights in increasing the price of Ventorlin inhaler, was it wasaware that the Union of India was in appeal before the Supreme Courtagainst the judgment of the High Court.

19.Arguing in rejoinder, Mr. Rana submits that the reliance, by Mr.Shukla on para 11 of the judgment of the Supreme Court in Cipla iscompletely misplaced. He submits that, in so asserting, Mr. Shukla hasoverlooked the fact that there was fundamental difference betweenthe petitioners before the High Court in Cipla and the presentpetitioner. The petitioners before the High Court in Cipla were in cleardefiance of the DPCO 1995, as they had increased the price of theScheduled formulations in violation of the DPCO 1995 even while theDPCO 1995 was in operation and the inclusion of the seven drugs indispute in that case in the First Schedule to the DPCO 1995 was yet tobe stayed.The demand against the petitioner, on the other hand,relates entirely to period during which, by virtue of the judgment ofthe High Court of Bombay, the operation of the DPCO 1995, insofaras it included Salbutamol as Scheduled drug, stood stayed.Thedecision of the Supreme Court to direct Cipla and other respondentsbefore it to deposit 50% of the over-charged amount could not,therefore, be applied to the present petitioner. He reiterates that there

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was no point of time when the present petitioner recovered, for theSalbutamol manufactured and sold by it, any amount in excess of thatfixed by the DPCO.

20.Mr. Rana also disputes Mr. Shukla’s contention that thejudgment of the High Court of Bombay had merged in the judgmentof the Supreme Court. He submits that, as no lis was determined bythe Supreme Court in its judgment, there could be no question ofmerger.

21.Mr. Rana, in conclusion, relies, on the Circular dated 9 January2002 issued by the NPPA, directing State Drug Controllers not to takeany coercive action against manufactures, importers or distributors inrespect of any of the seven drugs which formed subject matter ofdispute in Cipla, for having sold the said seven drugs at prices higherthan those fixed by the DPCO 1995, though the judgment of the HighCourt was in appeal before the Supreme Court.

Analysis

Re: The impact of judgment of High Court of Bombay and theSupreme Court in Cipla

22.Mr. Rana submits that during the entire period in respect ofwhich the impugned demand has been raised, the judgment of theHigh Court of Bombay in Cipla was in operation, as no stay had beengranted by the Supreme Court. It was for this reason, he submits, thatthe NPPA had, in its circular dated 9 January 2002 addressed to all

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State Drug Controllers, restrained any coercive action being takenagainst manufacturers who had charged, for one or more of the sevendrugs which formed subject matter of controversy in Cipla – whichincluded Salbutamol – any amount in excess of that fixed by theDPCO 1995.

23.Inasmuch there was no over-charging by the Petitioner inrespect of its Ventorlin inhaler, no demand under Para 3 of the DPCO1995 could be raised.

24.Mr. Rana is correct.

25.Till the date of the judgment of the High Court of Bombay inCipla, the price charged by the petitioner for its Ventorlin inhaler was,in fact, in accordance with the DPCO 1995.The inclusion ofSalbutamol in the First Schedule to the DPCO 1995 was struck downby the High Court in its decision in Cipla, which was rendered on 31August 2001. With effect from 31 August 2001, therefore, Salbutamolwas no longer included in the First Schedule to the DPCO 1995. Theperiod of demand in the present case is March 2002 to August 2003.The judgment of the Supreme Court in Cipla was rendered on 1August 2003. As soon as the judgment was rendered, the Petitionerreduced the prices of its Ventorlin inhaler and brought it in accordancewith the DPCO 1995. It is clear, therefore, that the Petitioner was in incompliance with the DPCO as it was in existence and operation at allpoints of time.

26.The court has, however, to address the implication of thejudgment of the Supreme Court in Cipla, rendered by it on 1 August2003, on demands pertaining to the period 31 August 2001 to 1August 2003.In the present case, the demand which relates to theperiod March 2002 to 31 August 2003, relates to the said period.

27.The pivotal issue is whether, in view of the judgment of theSupreme Court, it is open to the respondents to enforce the impugnedcommunications dated 5 October 2004 and 17 December 2004 againstthe petitioner.

28.This has to be examined in the background of Para 13 of DPCO1995, seen in the light of the judgment of the Supreme Court in Cipla.

29.Para 13 empowers the government to require manufacturerswho charge prices higher than the prices fixed or notified under theDPCO 1995, to deposit the amount that accrued to the manufacturersas result of such over-charging. During the period of demand in thepresent case, there was in fact no price fixed by the DPCO in respectof Salbutamol in force. It was not as though the Bombay High Courthad merely stayed the inclusion of Salbutamol in the First Schedule tothe DPCO 1995 by its judgment dated 31 August 2001, in which caseit might have been possible to contend that the inclusion ofSalbutamol in the First Schedule merely stood eclipsed during theperiod the judgement of the High Court remained in operation, andthat the shadow was removed with the judgement of the SupremeCourt. Where the inclusion of Salbutamol in the First Schedule was

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struck down by the High Court, the doctrine of eclipse has noapplication. The judgment set aside the inclusion of the seven drugswhich formed subject matter of controversy in the First Schedule tothe DPCO 1995.The Supreme Court has not dismissed the writpetitions filed by Cipla and others before the High Court of Bombay.The writ petitions have been remanded for de novo consideration.Unless the Supreme Court were to explicitly so state, or the writpetitions filed by Cipla and others before the High Court were to fail,there could be no question of treating Salbutamol as included in theFirst Schedule to the DPCO 1995 during the period 31 August 2001 to1 August 2003.

30.Mr. Shukla’s contention that, on par with the respondents beforethe Supreme Court in Cipla, the present petitioner should also bedirected to deposit 50% of the impugned demand, fails to notice afundamental difference between the petitioners before the BombayHigh Court in Cipla and the present petitioner. The petitioners beforethe High Court were manufacturers who, during the time the sevendrugs in question were part of the First Schedule to the DPCO 1995,charged in excess of the price fixed by the DPCO in respect of thosedrugs. In stark contrast, the price fixed by the Petitioner in respect ofits Ventorlin inhaler during that period was in accordance with theDPCO 1995. The Petitioner increased its price only after the BombayHigh Court by its judgment dated 31 August 2001, set aside theinclusion of Salbutamol (and six other drugs) in the First Schedule toDPCO 1995. Unlike the Petitioner before the High Court of Bombay,

therefore, the present Petitioner never charged, for Salbutamol, in

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derogation of the DPCO 1995 or the price fixed by it.Absentovercharging, it is obvious that there can be no sustainable demandunder para 13 of the DPCO 1995.

31.TheSupremeCourtwas,therefore,concernedwithmanufacturers who had charged in excess of the prices fixed by theDPCO 1995 even while the DPCO was in operation. Having chargedin excess of the price fixed by the DPCO 1995, the said manufacturers– who were the respondents before the Supreme Court – sought tochallenge the inclusion of their drugs in the First Schedule of 1995itself.

32.That challenge was accepted by the High Court of Bombay.The Supreme Court reversed the judgment of the High Court ofBombay and remanded the matter for de novo consideration.Thedecision of the Supreme Court to subject the respondents before it to acondition of deposit of 50% of the demand against them cannot,therefore, apply to the present petitioner, as the situation of thepetitioner is fundamentally different from that of the respondentsbefore the Supreme Court. The respondents before the Supreme Courthad consciously charged, for the products manufactured by them,prices which were in excess of those fixed by the DPCO 1995, beforeproceeding to launch challenge to the DPCO. It was 50% of suchover-charged amounts which the Supreme Court directed the saidcompanies to deposit.

33.As against this, the Petitioner never charged any amount inexcess of the price fixed by the DPCO 1995 at any point of time.

34.During the period of demand in the present case, Salbutamolwas not scheduled drug under the DPCO 1995. It has not become ascheduled drug under the DPCO 1995 by virtue of the judgment of theSupreme Court either.

35.I do not see, therefore, how Mr. Shukla seeks to rely on thejudgment of the Supreme Court in Kunhayammed. To reiterate, thisis not case in which Salbutamol was actually in the First Schedule tothe DPCO 1995 during the period of demand, and its inclusion stoodstayed by the High Court of Bombay. Had that been the situation,perhaps the reliance on Kunhayammed might have been justified.

36.This is case in which, during the period of demand,Salbutamol was not part of the First Schedule to the DPCO 1995.

37.Thevery basis of theimpugned demand,therefore,isfundamentally misplaced. Rule 13 applies only where manufacturercharges for its drug, price which is in excess of that fixed by theDPCO 1995. For that, the drug has, in the first instance, to be includedin the First Schedule to the DPCO 1995. During the period of dispute,was not Scheduled drug under the DPCO 1995.

38.Where the respondent appears to have erred is in assuming thatthe sequitur of the judgment of the Supreme Court in Cipla was toinclude, in the First Schedule to the DPCO 1995, the seven drugs

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which were subject matter of controversy before the Supreme Court.That, however, is not the effect of the judgment of the Supreme Court.The Supreme Court has not dismissed the challenged of Cipla andother petitioners before the High Court of Bombay. It has remandedthe challenge for de novo consideration.The judgment does not,therefore, undo the effect of the High Court of Bombay and bringSalbutamol, and the other six drugs, within the fold of the FirstSchedule to the DPCO 1995. The High Court has been directed to re-examine the matter. In fact, after having referred to the aspects which,according to it, escaped the attention of the High Court whilerendering its decision, the Supreme Court, in para 8.6 of its judgment,observed thus:

“8.6.We have broadly indicated the aspects on which the HighCourt could have focused its attention before reaching theconclusion it did. Nothing precludes the High Court from havingregard to other aspects or material which it considers relevant totest the correctness of the writ petitioners' claims. However, wewould like to clarify one thing. If, on reconsideration, the turnoverof any drug is found to be very close to the figure — ₹ 400 or 100 lakhs, as the case may be, the relevant criterion must be deemed tohave been satisfied. As we said earlier, mathematical accuracy isnot what is required.”

(Emphasis supplied)

39.Thus, it cannot be said, in law, that, by operation of thejudgment of the Supreme Court, Salbutamol ipso facto stood includedin the First Schedule of the DPCO 1995 during the period to whichdemand in the present case relates.I have not been informed of anyfurther developments in the High Court of Bombay consequent to theremand by the Supreme Court. The website of High Court of Bombayseems to indicate that the writ petitions are still pending.

40.The outcome of the proceedings in the High Court of Bombayis still in the realm of speculation.

41.As of today, the position is that, during the period of demand inthe present case, Salbutamol was not in the First Schedule to theDPCO 1995and, therefore, there could be no demand forovercharging of Salbutamol predicated on Para 13 of the DPCO 1995.

42.Even for this reason, therefore, the impugned communications,and the demand envisaged therein, have necessarily to be set aside.

43.In that view of the matter, the necessity of examining thealternate submission of Mr. Rana, predicated on the judgement of theHigh Court of Allahabad in T.C. Healthcare, stands obviated.

Conclusion

44.In view of the aforesaid, the impugned communications dated 5October 2004 and 17 December 2004, and the demand envisagedtherein cannot sustain on facts or in law.

45.The demand is accordingly quashed and set aside. The writpetition stands allowed, with no order as to costs.

46.The petitioner would be entitled to the refund of amountdeposited with this Registry consequent to the impugned orders along

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with any interest that may have been accrued thereon. The petitionershall also be entitled to be returned to the bank guarantee furnished byit as per the interim orders passed by this Court.

WP (C) 1527/2005

47.The facts of this case are identical to those in WP (C) 39/2005.The period of demand is also the same vis-à-vis March 2002 to August2003. The dates of the impugned communications are, however,different, as they are dated 14 October 2004 and the 19 January 2005.

48.The impugned communications dated 14 October 2004 and the19 January 2005 are therefore quashed and set aside.

49.The petitioners would be entitled to the refund of amountdeposited with this Registry consequent to the impugned orders alongwith any interest that may have been accrued thereon. The petitionersshall also be entitled to be returned to the bank guarantee furnished byit as per the interim orders passed by this Court.

DECEMBER 26, 2023

dsn

C. HARI SHANKAR, J.