UNION OF INDIA & ANR. v. CYNAMIDE INDIA LID. & ANR.

F The Judgment of the Court was delivered by

CHINNAPPA REDDY, J. It was just the other day that our brothers Ranganath Misra and M.M. Dutt, JJ. had to give directions in a case (Vincent Panikurbangara v. Union of India) where a public spirited litigant had complained about the rinscrupulous exploitation of the Indian Drug and Pharmaceutical Market by multinational Corporations by putting in circulation low-quality and even deleteri- ous drugs. In this group of cases we are faced with a different problem of alleged exploitation by big manufacturers of bulk drugs. ,The prob- lem is that of high prices, bearing, it is said, little relation to the cost of production to the manufacturers. By way of illustration, we may straightaway mention a glaring instance of such high-pricing which was

UNION v. CYNAMIDE LTD. [CHINNAPPA REDDY, J.) 851

brought to our notice at the very commencement of the hearing. A 'Barlagan Ketone', a bulk drug, was not treated as an essential bulk drug under the Drugs (Prices Control) Order, 1970 and was not in- cluded in the schedule to that order. A manufacturer was, under the provisions of that Order, free to continue to sell the drug at the price reported by him to the Central Government at the time of the comm- encement of the order, but was under an obligation not to increase the B price without the prior approval of the Central Government. The price which the manufacturer of Barlagan Kotone, reported to the Central Government in 1971 was Rs.24,735.68 per Kg. After the 1979 Drugs (Prices Control) Order came into force, the distinction between essen- tial and non-essential bulk drugs was abolished and a maximum price had to be fixed for Barlagan Ketone also like other bulk drugs. The manufac~rer applied for fixation of price at Rs.8,500 per Kg. The c Government, however, fixed the price at Rs. l,810 per Kg. For the moment, ignoring the price fixed by the Government, we see that the price of Rs.24,735 per Kg. at which the manufacturer was previously selling the drug and at which he continues to market the drug to this day because of the quashing of the order fixing the price by the High D Court, is so unconsciously high even compared with the price claimed by himself that it appears to justify the charge that some manufactur- ers do indulge in 'profiteering'.

Profiteering, by itself, is evil. Profiteering in the scarce resources of the community, much needed life-sustaining food-stuffs and life- E saving drugs is diabolic. It is a menance which had to be fettered and curbed. One of the principal objectives of the Essential Commodities Act, 1955 is precisely that. It must be remembered that Art. 39(b) enjoins a duty on the State towards securing 'that the ownership and control of the material resources of the community are so distributed as best to subserve the common good'. The Essential Commodities F Act is a legislation towards that end. Section 3(1) of the Essential Commodities Act enables the Central Government, if it is of opinion 'that it is necessary or expedient so to do for maintaining or increasing supplies of any essential commodity or for securing their equitable distribution and availability at fair price', to 'provide for regulating or prohibiting by order, the production, supply and distribution thereof G and trade and commerce therein'. In particular, s. 3(2)(c) enables the Central Government, to make an order providing for controlling the price at which any essential commodity may be bought or sold. It is in pursuance of the powers granted to the Central Government by the Essential Commodities Act that first the Drugs (Prices Control) Or- der, 1970 and later the Drugs (Prices Control) Order, 1979 were made. H

p. 852 Copy page pinpoint

Armed with authority under the Drugs (Prices Control) Order, 1979 A the Central Government issued notifications fixing the maximum prices at which various indigenously manufactured bulk drugs may be sold by the manufacturers. These notifications were questioned on several grounds by the manufacturers and they have been quashed by the Delhi High Court on the ground of failure to observe the principles B of natural justice. Since prices of 'formulations' are primarily depen- dent on prices of 'buli drugs', the notifications fixing the retail prices of formulations were also quahsed. The manufacturers had also filed review petitions before the Government under paragraph 27 of the 1979 Order. The review petitions could not survive after the notifica- tions sought to be reviewed had themselves been quashed. Neverthe- less the High Court gave detailed directions regarding the manner of c disposal of the review petitions by the High Court. The Union of India has preferred these appeals by Special leave of this Court against the judgment of the High Court. The case for the Union of India was presented to us ably by Shri G. Ramaswami, the learned Additional Solicitor General and the manufacturers were represented equally D ably by Shri Anil Diwan.

Before we turn to the terms of the Drugs (Prices Control) Order, 1979 we would like to make certain general observations and explain the legal position in regard to them.

E We start with the observation, 'Price-fixation is neither the func- tion nor the forte of the Court'. We concern ourselves neither with the policy nor with the rates. But we do not totally deny ourselves the jurisdiction to enquire into the question, in appropriate proceedings, ·whether relevant considerations have gone in and irrelevant considera- tions kept out of the determination of the price. For example, if the F Legislature has. decreed the pricing policy and prescribed the factors which should guide the determination of the price, we will, if neces- sary, enquire into the question whether the policy and the factors are present to the mind of the authorities specifying the pric''· But our examination will stop there. We will go no further. We will not deluge ourselves with more facts and figures. The assembling of the raw mate- G rials and the mechanics of price fixation are the concern of the execu- tive and we leave it to them. And, we will not revaluate the consi- derations even if the prices are demonstrably injurious to some manu- facturers or producers. 'J:he Court will, of course, examine if there is any hostile discrimination. That is a different 'cup of tea' altogether.

H The second observation we wish to make is, legislative action,

LINION v. CYNAMIDE LTD. [CHlNNAPPA REDDY. J.J 853

plenary or subordinate, is not subject to rules of natural justice. In the case of Parliamentary legislation, the proposition is self-evident. In the case of subordinate legislation, it may happen that Parliament may itself provide for a notice and for a hearing-there are several instances of the legislature requiring the subordinate legislating authority to give public notice and a public hearing before say, for example, levying a municipal rate-,in which case the substantial non-observance of the statutorily prescribed mode of observing natural justice may have the effect of invalidating the subordinate legislation. The right here given to rate payers or others is in the nature of a concession which is not to detract from the character of the activity as legislative and not quasi- judicial. But, where the legislature has not chosen to provide for any notice or hearing, no one can insist upon it and it will not be permissi- ble to read natural justice into such legislative activity. c

Occasionally, the legislature directs the subordinate legislating body to make 'such enquiry as it thinks fit' before making the subordi- nate legislation. In such a situation, while such enquiry by the subordi- nate legislating body as it deems fit is a condition precedent to the subordinate legislation, the nature and the extent of the enquiry is in the discretion of the subordinate legislating body and the subordinate legislation is not open to question on the ground that the enquiry was not as full as it might have been. The provision for 'such enquiry as it 't·· thinks fit' is generally an enabling pwvision, intended to facilitate the subordinate legislating body to obtain relevant information from all and whatever source and not intended to vest any right in any one other than the subordinate-legislating body. It is the sort of enquiry which the legislature itself may cause to be made before legislating, an -+- enquiry which will not confer any right on anyone.

The third observation we wish to make is, price fixation is more in the nature of a legislative activity than any other. It is true that, with the proliferation of delegated legislation, there is a tendency for the line between legislation and administration to vanish into an illusion. Administrative, quasi-judicial decisions tend to merge in legislative activity and, conversely, legislative activity tends to fade into and pre- sent an appearance of an administrative or quasi-jl!dicial activity. Any G attempt to draw a distinct line between legislative and administrative functions, it has been said, is 'difficult in theory and impossible in practice'. Though difficult, it is necessary that the line must sometimes be drawn as different legal rights and consequences may ensue. The distinction between the two has usually been expressed as 'one bet- ween the general and the particular'. 'A legislative act is the creation H

p. 854 Copy page pinpoint

and promulgation of a general rule of conduct without reference to particular cases; an administrative act is the making and issue of a specific direction or the application of a general rule to a particular case in accordance with the requirements of policy'. 'Legislation is the process of formulating a general rule of conduct without reference to particular cases and usually operating in future; administration is the process of performing particular acts, of issuing particular orders or of making decisions which apply general rules to particular cases.' It has also been said "Rule making is normally directed toward the formula- tion of requirements having a general application to all members of a broadly identifiable class" while, "an adjudication, on the other hand, applies to specific individuals or situations". But, this is only a bread distinction, not necessarily always true. Administration and adminis- trative adjudication may also be of general application and there may be legislation of particular application only. That is not ruled out. Again, adjudication determines past and present facts and declares rights and liabilities while legislation indicates the future course of action. Adjudication is determinative of the past and the present whil~ D legislation is indicative of the future. The object of the rule, the reach of its application, the rights and obligations arising out of it, its intended effect on past, present and future events, its form, the manner of its promulgation qre some factors which may help in draw- ing the line between legislative and non-legislative acts. A price fixa- tion measure does not concern itself with the interests of an individual manufacturer or producer. It is generally in relation to a particular commodity or class of commodities or transactions. It is a direction of a general character, not directed against a particular situation. It is intended to operate in the future. It is conceived in the interests of the general consumer public. The right of the citizen to obtain essential articles at fair prices and the duty of the State to so provide them are transformed into the power of the State to fix prices and the obligation of the producer to charge n(\ more than the price fixed. Viewed from whatever angle, the angle of general application the prospectivity of its effect, the public interest served, and the rights and obligations flow- ing therefrom, there can be no question that price fixation is ordinarily a legislative activity. Price-fixation may occassionally assume an administrative or quasi-judicial character when it relates to acquisition or requisition of goods or property from individuals and it becomes necessary to fix the price separately in relation to such individuals. Such situations may arise when the owner of property or goods is compelled to sell his property or goods to the Government or its nominee and the price to be paid is directed by the legislature to be determined according to the statutory guidelines laid down by it. In

p. 855 Copy page pinpoint

such situations the determination of price may acquire a quasi-judicial A character. Otherwise, price fixation is generally a legislative activity. We also wish to clear a misapprehension which appears to prevail in certain circles that price-fixation affects the manufacturer or producer primarily and therefore fairness requires that he be given an apportu- nity and that fair opportunity to the manufacturer or producer must be read into the procedure for price-fixation. We do not agree with the tl basic premise that price fixation primarily affects manufacturers and producers. Those who are most vitally affected are the consumet public. It is for their protection that price-fixation is resorted to and any .._ · increase in price affects them as seriously as any decrease does a manufacturer, if not more.

The three observations made by us are well-settled and well- c --1., founded on authority. The cases to which we shall now refer, will perhaps elucidate what we have tried, unfelicitously, to express.

In Shree Meenakshi Mills Ltd. v. Union of India, [1974] I SCC 468 a notification fixing the ex-factory price of certain counts of cotton D yam was questioned on the ground that the price had been arbitrarily fixed. After referring to Hari Shanker Bag/a v. State of Madhya Pradesh, [1955] 1 SCR 380; Union of India v. Bhanamal Gulzarimal, \- [1960] 2 SCR 627; Sri Krishna Rice Mills v. Joint Director {Food), (unreported); State of Rajasthan v. Nathmal and Mithamal, [1954] SCR 982; Narendra Kumar v. Union of India, [1960; 2 SCR 375; E Panipat Co-operative Sugar Mills v. Union of India, [1973] I ~CC 129; Anakapalle Co-operative Agricultural & Industrial Society Ltd. v. . Union of India, [1973] 3 SCC 435 and Premier Automobiles Ltd. v.. ..._ Union of India, [1972] 2 SCR 526 a constitution bench of the court observed that the dominant object and the purpose of the legislation ,1. was the equitable distribution and availability of commodities at fair F price and if profit and the producer's return were to be kept in the forefront, it would result in losing sight of the object and the purpose of the legislation. If the prices of yarn or cloth were fixed in such a way to enable the manufacturer or producer recover his cost of production and secure a reasonable margin of profit, no aspect of infringement of I any fundamental right could be said to arise. It was to be remembered G \ that the mere fact that some of those were engaged in the industry, trade or commerce alleged' that they were incurring loss would not render the law stipulating the price unreasonable'. It was observed,

"The control of prices may have effect either on maintain- ing oi increasing supply of commodity or securing equit- H

p. 856 Copy page pinpoint

able distribution and availability at fair prices. The control- A led price has to retain this equilibrium in the supply and demand of the commodity. The cost of production, a reasonable return to the producer of the commodity are to be taken into account. The producer must have an incen- tive to produce. The fair price must be fair not only from B the point of view of the consumer but also from the point of view of the producer. In fixing the prices, a price line has to be held in order to give preference or pre-dominant consid- eration to the interest of the consumer or the general public over that of the producers in respect of essential commo- · -~\ <lites. The aspect of ensuring availability of the essential commodities to the consumer equitably and at fair price is c the most important consideration.

The producer should not be driven out of his produc- ing business. He may have to bear loss in the same way as he does when he suffers losses on account of economic forces operating in the business. If an essential commodity is in short supply or there is hoarding, concerning or there is unusual demand, there is abnormal increase in price. If price increases, it becomes injurious to the consumer. There is no justification that the producer should be given -J the benefit of price increase attributable to hoarding or cornering or artificial short supply. In such a case, if an "escalation" in price is contemplated at intervals, the object of controlled price may be stultified. The controlled price will enable both the consumer and the producer to tide over difficulties. therefore, any restriction in excess off what would be necessary in the interest of general public or \ F to remedy the evil has to be very carefully considered so -"f· that the producer docs not perish and the consumer is not .-ippled."

the cases of Panipat Sugar Mills and Anakapalle Co-operative Agricultural Society were distinguished on the ground that they were G governed by- sub-section (JC) of sec. 3 of the Essential Commodities Act and therefore, had no relevance to the case before the Constitu- r lion Bench. The "case of Premier Automobiles was distinguished on the ground that the decision was rendered by invitation and on the agree- ment of the parties irrespective of technical and legal questions. The Court quoted with approval a passage from Secretary of Agriculture v. H Central Reig Refining Company, 330 US 604, stating,

UNION v. CYNAMfDE LTD. [CHJNNAPPA REDDY, J.J 857

"Suffice it to say that since Congress fixed the quotas on a A historical basis it is not for this Court to reweigh the rele- vant factors and, per chance, sub~titute its notion of ex- pediency and fairness for that of Congress. This is so even though the quota thus fixed may demonstrably be dis- advantageous to certain areas or persons. This Court is not a tribunal for relief .from the crudities and inequities of B complicated experimental economic legislation".

In Saraswati Industrial Syndicate Ltd. v. Union of India, [1974] 2 SCC ~ - 630; the Court observed,

"Price-fixation is more in the nature of a legislative measure even though it may be based upon objective c criteria found in a report or.other material. It could not, therefore, give rise to a complaint that a rule of natural justice has not been followed in fixing the price. Neverthe- less, the criterion adopted must be reasonable. Reason- ableness, for purposes of judging whether there was an D "excess of power" or an "arbitrary" exercise of it, is really !)le demonstration of a reasonable nexus between the mat- ters which are taken into account in exercising a power and the purposes of exercise of that power."

It was also reiterated that the decision in Shree Meenakshi Mills' case E was based on a special agreement between the.parties and therefore, had no relevance to the question befor.e them.

In Prag Ice & Oil Mi/is v. Union of India, [ 1978) 3 SCC 459 a Constitution Bench of seven judges of this court had to consider the validity of the Mustard Oil (Price Control) Order, 1977, an Order F made in exercise of the powers conferred upon Central Government by the Essential Commodities Act. Chandrachud, J. speaking for the court approved the observation of Beg, CJ. in Sataswati Industrial Syndicate that it was enough compliance with the Constitutional man- date if the basis adopted for price fixation was not shown to be so patently unreasonable as to be in excess of the power to fix the price. G ~I He observed

"In the ultimate analysis the mechanics of price fixation has necessarily to be left to the judgment of the Executive and unless it is patent that there is hostiled discrimination against a class of operators, the processual basis of price H

p. 858 Copy page pinpoint

fixation has to be accepted in the generality of cases as valid." y Referring to Shri Meenakshi Mills, the learned CJ. reaffirmed the approval accorded to the statement in Secretary of Agriculture v. Cen- tral Reig Refining Company (supra) that Courts of Law could not be converted into tribunals for relief from the crudities and inequities of. complicated experimental economic legislation. Panipat Sugar and Anakappalle Society were again referred to and it was pointed out that those cases turned on the language of s. 3(3C) of the Essential Com- modities Act. Premier Automobiles was considered and it was affir- med that the judgment in that case could not be treated as precedent ~ - and could not afford any appreciable assistance in the decision of price fixation cases as it proceeded partly on agreement between the parties and partly on concessions made at tlie bar. Beg, CJ. who delivered a separate opinion for himself and for Desai, J. agreed that the judg- ment in Premier Automobiles was not to provide a precedent in price fixation case. He also reaffirmed the proposition that price fixation was in the nature of a legislative measure and could not give rise to a complaint that natural justice was not observed. He indicated the indi- cia which led him to the conclusion that price.fixation was a legislative measure. He observed:

"We think that unless, by the terms of a particular statute, or order, price fixation is made a quasi-judicial function for specified purposes or cases, it is really legislative in charac- ter in the type of control order which is now before us because it satisfies the tests of legislation. A legislative measure does not cbncern itself with the facts of an indi- vidual case. It is meant to lay down a general rule appli- F cable to all persons or objects or transactions of a particular kind or class. In the case before us, the Control Order applies to sales of mustard oil anywhere in India by any dealer. Its validity does not depend on the observance of any procedure to be complied with or particular types of evidence to be taken on any specified matters as conditions G precedent to its validity. The test of validity is constituted by the nexus shown between the order passed and the pur- poses for which it can be passed, or in other words by reasonableness judged by possible or probable conse- quences."

H In New India Sugar Works v. State of Uttar Pradesh, [1981] 2 SCC 293

p. 859 Copy page pinpoint

there was an indication though it was not expressly so stated that the A { question of observing natural justice did not arise in cases of price fixation. In Laxmi Khantlsari v. State of Uttar Pradesh, [1981] 2 SCC 600 it was held that the Sugar Cane Control Order, 1966 was a legisla- live measure and therefore, rules of natural justice were not attracted. In Rameshchandra Kachardas Porwal v. State of Maharashtra, [ 1981] 2 sec 722 it was observed that legislative activity did not invite natural B

~- justice and that making of a declaration that a certain place shall be a principal market yard for a market area under the relevant Agricul- tural Produce Markets Acts was an act legislative in character. The ~ ~- observation of Magarry, J. in Batesv. Lord Hailsha, of St. Marylebone [1972] 1 WLR 1973 that the rules of natural justice do not run in the sphere of legislation, primary or delegated, was cited with approval c and two well known text books writers Paul Kackson and Wades -< H.W.R. were also quoted. The former had said, "There is no doubt that a minister, or any other body, in making legislation, for example, by statutory instrument or by law, is not subject to the rules of natural justice-Bates v. Lord Hai/sham of St. Marylebone (supra}-any more than is Parliament itself; Edinburgh and Dalkeith Rv. v. Wauchope per D Lord Brougham, [1842] 8 CL·& F 700, 720; British Railways Board v. Pickin, [1974] 1 All ER 609. The latter had said, "There is no right to be heard before the making of legislation, whether primary or -~ delegated, unless it is provided by statutes." In Sarkari Sasta Anaj Vikreta Sangh v. State of Madhya Pradesh, [1981] 4 SCC 471; it was

- pointed out that the amendment of the Madhya Pradesh Food Stuffs Distribution Control Order was a legislative function and there was; therefore, no question of affording an opportunity to those who were to E

be affected by it. ~ In We/com Hotel v. State of Andhra Pradesh, [1983] 4 SCC 575 ~ the observations of Chandrachud, CJ. in Prag Ice and Oil Mills were F quoted with approval in connection with the fixation of prices of food stuffs served in restaurants.

In Tharoe Mal v. Puranchand, [1978] 1 SCC 102 one of the questions was regarding the nature of the hearing to be given before imposing municipal taxes under the Uttar Pradesh Municipalities Act, G

1916. It was held,

" ........ the procedure for the imposition of the tax is legislative and not quasi-judicial . . . . . . The right to .. object, however, seems to be given at the stage of pro- posals of the tax only as a concession to requirements of H

p. 860 Copy page pinpoint