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

A fairness even thou1;h the procedure is legislative and not quasi-judicial." '\

We mentioned that the Panipat and the Anakapalle cases were distinguished in Shrce Meenakshi and Prag Ice. Panipat and Anakapalle were both cases where the question was regarding the price payable to a person who was required to sell to the Government- a certain percentage of the quantity of sugar produced in his mill. The f-· Order requiring him to sell the sugar to the Government was made under s. 3(2)(f) of the Essential Commodities Act under which the . -44 Central Government was enabled to make an order requiring any ' person engaged in the production of any essential commodity to sell the whole or specified part of the quantity produced by him to the Government or its nominee. It will straight-away be seen that an order under s. 3(2)(f) if a specific order directed to a particular individual for ~· the purpose of enabling the Central Government to purchase a certain quantity of the commodity from the person holding it. It is an order for a compulsory sale. When such a compulsory sale is required to be made under s. 3(2)(f}, the question naturally arises what is the price to be paid for the commodity purchased? Section 3(3C) provides for the ascertainment of the price. It provides that in calculating the amount to be paid for the commodity required to be sold regard is to be had to-(a) the minimum price, if any, fixed for sugarcane by the Central -f Government under this section; (b) the manufacturing cost of sugar; E (c) the duty or tax, if any, paid or payable thereon; and (d) the secur- ing of a reasonable return on the capital employed in the business of manufacturing sugar. It is further prescribed that different prices may - be determined, from time to time, for different areas or for different L factories or for different kinds of sugar. It is to be noticed here that the \ payment to be made under s. 3(3C) is not necessarily the ·same as the )... F controlled price which may be fixed under s. 3(2)(c) of the Act. Sec- tion 3(2)(c) of the Act, we have already seen. enables the Central Government to make an order controlling the price at which any es- sential commodity may be bought or sold, if the Central Government is of opinion that it is necessary or expedient so to do for maintaining or increasing supplies of any essential commodity or in securing their equitable distribution and availability at fair prices. Section 3(3C) pro- vides for the determination of the price to be paid to a person who has r· been directed by the Central Government by an Order made under s. " 3(2)(c) to sell a certain quantity of an essential commodity to the Government or its nominee. While s. 3(2)( c) contemplates an Order of a general nature, s. 3(3C) contemplates a specific transaction. If the provisions of s. 3(2)(c) under which the price of an essential commo-

UNION'· CYNAMIDE LTD. (CHINNAPPA REDDY, J.[ 861

dity may be controlled are contrasted with s. 3(3C) under which pay- A ment is to be made for a commodity require to be sold by an individual to the Government, the distinction between a legislative act and a non-legislative act will at once become clear. The Order made under s. 3(2c), which is not in respect of a single transaction, nor directed to particular individual is clearly a legislative act, while an Order made under s: 3(3C) which is in respect of a particular transaction of com- B pulsory sale from a specific individual is a non-legislative act. The Order made under s. 3(2)(e) controlling the price of an essential com- modity may itself prescribe the manner in which price is to be fixed but that will not make the fixation of price a non-legislative activity, when the activity is not directed towards a single individual or transaction but is of a general nature, covering all individuals and all transactions. The legislative character of the activity is not shed and an administra- c tive or quasi-judicial character acquired merely because guidelines prescribed by the statutory order have to be taken into account.

We may refer at this juncture to some illuminating passages from Schwrtz's book on 'Administrative Law'. He said: D

"If a particular function is termed "legislative" or "rule- making" rather than "judicial" or "adjudication," it may have substantial effects upon the parties concerned. If the function is treated as legislative in nature, there is no right to notice and hearing, unless a statute expressly requires E them. If a hearing is held in accordance with a statutory requirement, it normally need not be a formal one, gover- ned by the requirements discussed in Chapters 6 and 7. The ~. characterization of an adn1inistrative act as legislative

J instead of judicial is thus of great significance."

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"As a federal court has recently pointed out, there is no "bright line" between rule-making and adjudication. The most famous pre-APA attempt to explain the difference G between legislative and judicial functions was made by Justice Holmes in Prentis v. Atlantic Coast Line Co. "A judicial inquiry," said he, "investigates, declares and enforces liabilities as they stand on present or past facts and under laws supposed already to exist. That is its purpose and end. Legislation on the other hand looks to the future H

862 SUPREME COURT REPO°R.TS (1987] 2 S.C.R.

and changes existing conditions by making a new rule to be A applied therafter to all or some part of those subject to its y power.·: The key factor in the Holmes analysis is time: a rule prescribes future patterns of conduct; a decision determines 'liabilities upon the basis of present or past facts." B "The element of applicability has been emphasized. by others as the key in differentiating legislative from judicial ~- functions. Accoding to Chief Justice Burger, "Rulemaking is normally directed toward the formulation of require- · ..M-\ ~

ments having a general application to all members of a broadly identifiable class. '.I An adjudication, on the other c hand, applies to specific individuals or situations. Rule- making affects the rights of individuals in the abstract and must be applied in a further proceeding before the legal ~ position of any particular individual will be definitely affec ted; adjudication operates conce~etly upon individuals in D their individual capacity."

We may now turn our auention to the two Drugs (Prices Control) Order of 1970 and 1979, both of which were made by the Central Government in exercise of its powers under s. 3 of the Essen- -;. ti al Commodities Act. E The Drugs (Prices Control) Order, 1970 defined 'Bulk Drugs' as follows: - "Bulk drugs" means "any unprecessed phamaceutical, chemical, biological and plant product or medicinal gas + F conforming to pharmacopoeia! or other standards accepted ,x.: which is used as such or after being processed into formula- lions and includes an essential bulk drug."

Bulk drugs were divided into essential bulk drugs which were included in the schedule and bulk drugs which were not so included. In the case G of essential bulk drugs, paragraph 4 of the order enabled the Central Government to fix the maximum price at which such essentia1 bulk drugs should be sold. In the case of bulk drugs, which were not in- cluded in the schedule, a manufacturer was entitled to continue to market the product at the same price at which he was marketing the products at the time of the commencement of the order. He was re- H quired to report this price to the Central Government within two

UNION v. CYNAMIDE LTD. (CHINNAPPA REDDY, J.l 863

weeks of the commencement of the order and was further prohibited A 'i from increasing the price without obtaining the approval of the Central ·\ Government.

A Committee ou Drugs and Pharmaceutical Industry, popularly known as the Hathi Committee was appointed by the Government of India to enquire into the various· facet' of the Drug Industry in India. B

.~·\ One of the terms of reference was 'to examine the measures taken so far to reduce prices of drugs for the consumer, and to recommend such

- .~ further measures as may be necessary to rationalise the prices of basic drugs and formulations.' The Hathi Committee noticed that 'in a country like India where general poverty and the wide disparities in levels of income between different sections existed' it was particularly c important to emphasise 'the social utility of the industry and the urgent ~ need for extending as rapidly as possible certain minimum facilities in terms of preventive and curative medicines to the large mass of people both urban and rural'. It was said,

"The concern about drug prices, therefore, really arises D from the fact that many of them are essential to the health and welfare of the community; and that there is no justifi~ cation for the drug industry charging prices and having a \- production pattern which is based not upon the needs of the community but on aggressive marketing tactices and

- created demand."

The Government of India accepted the report of the Hathi Committee and announced in Parliament the 'Statement on Drug Policy' pursuant E

-~ to which the Drugs (Prices Control) Order, 1970 was repealed and the

J Drugs (Prices Control) Order, 1979 was made. Paragraph 44 of the Statement on Drug Policy in 1978 dealt with 'pricing policy' and it may F be usefully extracted here. It was as follows:-

"The Hathi Commitee had recommended that a return post tax between 12 to 14% on equity that is paid up capital plus reserves, may be adopted as the basis for price fixa- tion, depending on the importance and complexity of the G --1 bulk drug. In the case of formulations, the Hathi Commit- tee felt that the principle of selectivity could be introduced in terms of (a) the size'of the units, (b) selection of items; and (c) controlling the prices only of market leaders, in particular, of products for which price control is contemp- lated. The Hathi Committee considered that units (other H

864 SUPREME COURT REPORTS [1987] 2 S.C.R.

A than MRTP units) having only turnover of less than Rs. I crore may be exempted from price control. Alternatively, 'y ' all formulations (other than those marketed under generic names) which have an annual sale in the country in excess of Rs.15 lakhs (inclusive of excise duty) may be subjected to price control, irrespective of whether or not the total B annual turnover of the unit is in excess of Rs. I crore. The ceiling price will be determined taking into account the production costs and a reasonable return for the units which are the market leaders. Yet another variant of a selectivity, according to the Hathi Committee, would be to identify product groups which individually are important c and which collectively constitute the bulk of the output of the industry. In respect of each item of this list, it would be possible to identify the leading producers who account for about 60% of the sales between them. On the basis of cost analysis in respect of those units, maximum prices may be prescribed and all other units may be free to fix their prices D within this ceiling. On balance, the Hathi Committee was of the view that this particular variant selectivity may be administratively simpler."

The Drugs (Prices Control) Order, 1979 was' made pursuant to this Statement of Policy. Paragraph 2(a) of the Drugs,(Prices Control) E Order, 1979 defines 'bulk drug' to mean "any substance including pharmaceutical, chemical, biological or plant product or medicinal gas conforming to pharmacological or other st&ndards accepted under the Drugs and Cosmetics Act, 1940, which is used as such or as in ingre- - dient in any formulations." "Formulation" is defined as follows:-

F "Formulation means a medicine processed out of, or con- taining one or more bulk drugs or drugs, with or without the use of any pharmaceutical aids for internal or external use for, or in the diagnosis, treatment, mitigation or pre- vention of disease in human beings or animals, but shall not include- G (i) any bona fide Ayurvedic (including Sidha) or Unani (Tibb) Systems of medicine; '- (ii) any medicine included in the Homoeopathic system of medicine; H

UNION v. CYNAMIDE LTD. [CH!NNAPPA REDDY,.J.] 865

(iii) any substance to which the provisions of the Drugs A and Cosmetics Act, 1940 (XXIII of 1940), do not apply"

The expressions "free reserve", "leader price", "net-worth", "now bulk drug", "pooled price," "pre-tax return", "'retention price" are B defined in the following manner:

" "Free reserve" means a reserve created by appropriation

- of profits, but does not include reserves provided for con- tingent liability, disputed claims, goodwill, revaluation, and other similar reserves". c " 'leader price' means a price fixed by the Government for formulations specified in Category I, Category II or Cate- gory III of the Third Schedule in accordance with the provi- sions of paras. 10 and II, keeping in view the cost of or efficiency, or both, of major manufacturers of such for- D mulations."

" 'net-worth' means the share capital of a company plus free reserve, if any."

" 'new bulk drug' means a bulk drug manufactured within E the country, for the first time after the commencement of this Order."

" 'Pooled price' in relation to a bulk drug, means the price ~·

j fixed under para 7." F ' "'pre-tax return' means profits before payment of income- tax and sur-tax and includes such other expenses as do not form part of the cost of formulations."

" 'retention price' in relation to a bulk drug means tbe price fixed under paras 4 and 7 for individual manufacturers, or G importers, or distributors, or such bulk drugs."

The distinction between an essential bulk drug included in the schedule and a bulk drug not so included in the schedule, which was made in 1970 Drugs (Prices Control) Order was abandoned in the 1979 Order. Bulk drugs were. however, broadly divided into indigenously H

866 SUPREME COURT REPORTS [1987] 2 S.C.R.

A manufactured bulk drugs, imported bulk drugs and bulk dru1;s which were both manufactured indigenously as also imported. Y Paragraph 3 of tbe 1979 Order enables the Government, with a view to regulating the equitable distribution of any indigenously manufactured bulk drugspecified in the first or the second schedule B and making it available at a fair price and after making such enquiry as it deems fit, to fix from time to time by notification in the official

- gazette, the maximum price at which the bulk drug shall be sold. Clause (2) of Paragraph 3 provides that while so 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 manu- C facturer and allow a reasonable return on net worth. By way of an explanation efficient manufacturer is defined to mean "a manufac- turer--(i) Whose production of such bulk drug 'in relation to the total production of such bulk drug in the country is large, or (ii) who employs efficient technology in the production of such bulk drug." We D have already noticed that 'net worth' is defined to mean 'the share capital of a company plus free reserve, if any'. "Free reserve" itself is separately defined. It is then prescribed by clause (3)- -·. "No person shall sell a bulk drug at a price exceeding the price notified under sub-paragraph 1, plus local taxes, if --1 any payable: provided that until the price of bulk drug is so ' E notified, the price of such bulk drug shall be the price which prevailed immediately before the commencement of this order and the manufacture of such bulk drug at a price exceeding the price which prevailed as aforesaid." I

F This means that until the maximum sale price of an indigenously >-.c manufactured bulk drug is fixed under paragraph 3 of the 1979 Order, the price fixed under paragraph 4 of the 1970 order or the price permit- ted under paragraph 5 of the 1970 order was to be maximum sale price. Paragraph 3(4)(a) requires a manufacturer commencing production of the bulk drug specified in the First or Second Schedule, the price of which has already been notified by the Government, not to sell the bulk drug at a price exceeding the notified price. Paragraph 3(4)(b) ~· provides that where the price of a bulk drug has not been notified by the Government, the manufacturer shall, within 14 days of the comm- encement of the the production of such bulk drug, make an application to the Government in Form 1 and intimate the Government the price at which he intends to sell the bulk drug and the Government may,

UNION v. CYNAMIDE LTD. [CHINNAPPA REDDY, J.J 867

after making such an enquiry as it thinks fit, by order, fix a provi- A sional price at which such bulk drug shall be sold.

Paragraph 4 of the 1979 order provides that notwithstanding any- thing contained in paragraph 3, the Government may, if it considers necessary or expedient so to do for increasing the production of an indigenously manufactured bulk drug specified in the first or second schedule, by order, fix-

"(a) a retention price of such bulk drug,

(b) a common sale price for such bulk drug taking into account the wrighted average of the retention price fixed under clause (a)." ·

Paragraph 4 is thus in the nature of an exception to paragraph 3. It is meant to provide a fiHip to individual manufacturers of bulk drugs whose production it is necessary to increase. Retention price, by its very definition pertains to individual manufacturers. Common sale price, we take it, is the price at which manufacturers whose retentions are fixed may sell the bulk drug despite the maximum sale price fixed under paragraph 3.

Paragraph 5 deals with the power of the Government to fix maximum sale price of new bulk drugs. Paragraph 6 enables the _E Government to fix the maximum sale price of imported bulk. drugs specified in First and Second Schedules. Paragraph 7 deals with the power of the Government to fix retention price and pooled price for

J the sale of bulk drugs specified in the First and Second Schedules which are both indigenously manufactured and imported. Paragraph 9 empowers the Govermnent to direct manufacturers of bulk drugs to sell bulk drugs to manufacturers of formulations. Paragraph 10 pres- cribes a formula for .calculating the retail price of formulations. The F

formula is:

"R.P. = (M.C.+C.C.+P.M.+P.C.) x (l+MU)+ E.D. G 100 "R.P." meaits retail price.

"M.C." means material cost and includes the cost of drugs and other pharmaceutical aids used including overages, if any, and process loss thereon in accordance with such H

868 SUPREME COURT REPORTS [1987] 2 S.C.R.

norms as may be specified by the Government from time to time by notification in the official Gazatte in this behalf.

"C.C." means conversion cost worked out in accordance with such norms as may be specified by the Government from time to time by notification in the official Gazettee in this behalf.

"P.M." means the cost of packing material including pro- f·- cess loss thereon worked out in accordance with such norms as· may be specified by the Government from time to time -~'. • by notification in the official Gazttte in this behalf. c "P.C." means packing charges worked out in accordance with such norms as may be specified by the Government from time to time by notification in the official Gazette in this behalf.

D "M. U." means make-up referred to in para. 11.

"E.D." means excise duty."

Paragraph 11 explains what 'Mark-up' means. Paragraph 12 empowers the Government to fix leader prices of formulations of categories I and E II specified in the third schedule. Paragraph 13 empowers the Govern- ment to fix retail price of formulations specified in category III of third schedule. Paragraph 14 contains some general provisions regarding prices of formulations. Paragraph 15 empowers the Government to revise prices of formulations.

F Paragraph 16 provides that where any manufacturer, importer or distributor of any bulk drug or formulation fails to furnish information as required under the order within the time specified therein, the Government may, on the basis of such information as may be available with it, by order, fix a price in respect of such bulk drug or formulatfon as the case may be. Paragraph 17 requires the Government to maintain G the Drugs Prices Equalization Account to which shall be credited, by the manufacturer, among other items,

"the excess of the common selling price or, as tbe case may be, pooled price over his retention price."

H It is provided that the amount credited to the Drugs Prices Equaliza-

UNION v. CYNAMIDE LTD. [CHINNAPPA REDDY, l.] 869

tion Account shall be spent for paying to the manufacturer, "the short- A ·"'.· fall between his retention price and the common selling price or as the case may be, the pooled price."

Paragraph 27 enables any person aggrieved by any notification or order under paragraphs 3, 4, 5, 6, 7, 9, 12, 13, 14, 15 or 16 to apply to the Government for a review of the notification or order within fifteen B days of the date of the publication of the notification in the official Gazette, or, as the case may be, the receipt of the order by him.

Bulk drugs constituting categories I and II are enumerated in the First Schedule. Bulk drugs constituting category III are enumerated in the Second Schedule. Formulations constituting categories I, II and III are enumerated in the Third Schedule. The Fourth Schedule pres- c cribes the various forms referred to in the different paragraphs of the Drugs (Prices Control) Order. Form No. 1 which is referred to in paragraphs 3(4), 5 and 8(1) is titled "Form of application for fixation or revision of prjces of bulk drug". The several columns of the Form provide for various particulars to be furnished and item 18 requires the applicant to furnish "the cost of production of the bulk drug as per proforma (attached) duly certified by a practising Cost/Chartered Accountant". The 'proforma' requires particulars of cost-data, such as, raw materials, utilities, conversion cost, total cost of production, interest on borrowings, minimum bonus, packing, selling expenses, transport charges, transit insurance charges, total cost of sales, selling price, existing ptice or notional or declared prices, etc. to be fur- nished. A note at the end of the proforma requires the exclusion from cost certain items of expenses, such as, bonus in excess of statutory minimum, bad debts and provisions, donations and charities, loss/gain on sale of assets, brokerage and comnrission, expenses not recognised by income tax authorities and adjustments relating to previous years. F

Shri G. Ramaswamy, learned Additional Solicitor General on behalf of the Union of India, submitted that the fixation of maximum price under paragraph 3 of the Drugs (Prices Control) Order was a legislative activity and, therefore, not subject to any principle of natural justice. He urged that relevant information was required to be G furnished and was indeed furnished by all the manufacturers in the prescribed form as required by paragraph 3(4) of the Drugs (Prices Control) Order. This information obtained from the various manu- facturers was taken into account and a report was then obtained from the Bureau of Industrial Costs and Prices, a high-powered expert body specially constituted to undertake the study of industrial cost struc- H

870 SUPREME COURT REPORTS [1987] 2 S.C.R.

A lures and pricing problems and to advise the Government. It was only thereafter that notifications fixing the prices were issued. He further ·y submitted that paragraph 27 of the Central Order gave a remedy to the manufacturers to seek a review of the order fixing the maximum price under paragraph 3. The review contemplated by paragraph 27 in so far as it related to the notification under paragraph 3, it was submitted by B the learned Additional Solicitor General, did not partake the charac- ter of a judicial or quasi-judicial proceeding. He urge\) that the manufacturers had invoked the remedy by way of review, but before the applications for review could be dealt with, they rushed to the court with the writ petitions out of which the appeal and the special leave J petitions arise. He urged 'that the Government had always been ready and willing to give a proper hearing to the parties and in fact gave them C a hearing in connection with their review applications. The grievance of the manufacturers in the writ petitions that they were not furnished )--- the details of the basis of the price fixation was not correct since full information was furnished at the time of the hearing of the review applications when the matter underwent thorough and detailed discus- D sion between the parties and the Government as well as the Bureau of Industrial Costs and Prices.

The submission of Shri Anil Diwan, learned counsel for the respondents was that unlike other price control legislations, the Drugs --f · (Prices Control) Order was designed to induce better production by E providing for a fair return to the manufacturer. Reference was made to the Hathi Committee report which had recommended a return of 12 to 14% post tax return on equity, that is, paid up capital plus reserves and the 'Statement on Drug Policy' which mentioned that ceiling prices .J.. may be determined by taking into account production costs and a r reasonable return. Great emphasis was laid on the second clause of ·,. F paragraph 3 of the 1979 Order which provides that in 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 networth. It was sub- mitted that the provision for an enquiry preceding the determination of the price of a bulk drug, the prescription in paragraph 3 clause 2 that the average cost of production of the drug manufactured by an effi- cient manufacturer should be taken into account and that a reasonable return on networth should be allowed and the provision for a review of the order dete1mining the price, established that price-fixation under the Drugs (Prices Control) Order 1979 was a quasi-judicial activity obliging the. observance of the rules of natural justice. The suggestion of the learned counsel was that the nature of the review under

UNION v. CYNAMIDE LTD. [CHINNAPPA REDDY·, J.] 871

paragraph 27 was so apparently quasi-judicial and that the need to A "'f' know the reasons for the order sought to be reviewed was so real if the manufacturer was effectively to exercise his right to seek the quasi- judicial remedy of review, that by necessary implication it became obvious that the Order fixing the maximum price must be considered to be quasi-judicial and not legislative in character. The provision for enquiry in the first clause of paragraph 3 and the prescription of the B ~ matters to be taken info account in the second clause of paragraph 3 \ further strengthened the implication, according to the learned counsel.

. L. It was contended that in any case, whatever be the nature of the ' · enquiry and the order contemplated by paragraph 3, the review for which provision made by paragraph 27 was certainly of a quasi-judicial character and, therefore, it was necessary that the manufacturers should be informed of the basis for the fixation of the price and C ~ furnished with details of the same in order that they may truly and effectively avail themselves of the remedy of review. If that was not done, the remedy would become illusory. It was argued with reference to various facts and figures that the price had been fixed in an arbitrary manner and the Government was not willing to disclose the basis on which the prices were fixed on the pretext that it may involve dis- . closure of matters of confidential nature. It was stated that the applica- tions of the manufacturers for review of the notifications fixing the -)- prices had not been disposed of for years though time was really of the very essence of the matter. The prices of formulations were dependent on the prices of drugs and it was not right that prices of formulations should have been fixed even before the applications for review against the notifications fixing the price of bulk drugs were disposed of. It was

t· . suggested that the delay in disposing of the review applications had the effect of rendering the original notifications fixing the prices unreal and out of date and liable to be struck down on that ground alone. ~ F We are unable to agree with the submissions of the learned counsel for the respondents either with regard to the applicability of the principles of natural justice or with regard to the nature and the scope of the enquiry and review contemplated by paragraphs 3 and 27 while making our preliminary observations, we pointed out that price fixation is essentially a legislative activity though in rare circum- G stances, as in the case of a compulsory sale to the Government or its nominee, it may assume the character of an administrative or quasi- judicial activity. Nothing in the scheme of the Drugs (Prices Control) Order induces us to hold that price fixation under the Drugs (Prices Control) Order is not a legislative activity, but a quasi-judicial activity which would attract the observance of the principles of natural justice. H

872 SUPREME COURT REPORTS [1987] 2 S.C.R.

A Nor is there anything in the scheme or the provisions of ihe Drugs (Prices Control) Order which otherwise contemplates the observance Y of any principle of natural justice or kindred rule, the non·observance of which would give rise to a cause of action to a suitor. What the order does contemplate however is 'such enquiry' by the Government 'as it thinks fit'. A provision for 'such enquiry' as it thinks fit' by a subordi- B nate legislating body, we have explained earlier, is generally an enabl- ing provision to facilitate the subordinate legislating body to obtain }._ relevant information from any source and it is not intended to vest any / right in any body other than the subordinate legislating body. In the _-.J, _ present case, the enquiry contemplated by paragraph 3 of Drugs ' (Prices Control) Order is to be made for the purposes of fixing the maximum price at which a bulk drug may be sold, with a view to c regulating its equitable distribution and making it available at a fair \_ price. The primary object of the enquiry is to secure the bulk drug at a r- fair price for the benefit of the ultimate consumer an object designed to fulfil the mandate of Art. 39(b) of the Constitution. It is primari_ly from the consumer public's point of view that the Government b ex- D pected to make its enquiry. The need of the consumer public is to be ascertained and making the drug available to them at a fair price is what it is all about. The enquiry is to be made from that angle and directed towards that end. So, information may be gathered frnm whatever source considered desirable by the Government. The -f enquiry, obviously is not to be confined to obtaining information from E the manufacturers only and indeed must go beyond. However, the interests of the manufacturers are not to be ignored. In fixing the price of a bulk drug, the Government is expressly required by the Order to take into account the average cost of production of such bulk drug + manufactured by 'an_ efficient manufacturer' and allow a reasonable l\ return on 'net worth'. For this purpose too, the Government may ~ F gather information from any source including the manufacturers. Here again the enquiry by the Government need not be restricted to 'an efficient manufacturer' or some manufacturers; nor need it be exten- ded to all manufacturers. What is necessary is that the average cost of production by 'an efficient manufacturer' must be ascertained and a reasonabl_e return allowed on 'net worth'. Such enquiry as it thinks fit G is an enquiry in which information is sought from whatever source considered necessary by the enquiring body and is different from an enquiry in which an opportunity is required to be given to persons likely to be affected. The former is an enquiry leading to a legislative activity while the latter is an enquiry which ends in an administrative or quasi-judicial decision. The enquiry contemplated by paragraph 3 H of the Drug (Prices Control) Order is an enquiry of the former charac-

UNION v. CYNAMIDE LTD. jCH!NNAPPA REDDY, J:] 873

ter. The legislative activity being a subordinate or delegated legislative A ---r. activity, it must necessarily comply with the statutory conditions if any, I no1111Jre anct-no less, and no implications of natural justice can he read into it unless it is a statutory condition. Notwithstanding that the price fixation is a legislative activity, the subordinate legislation had taken care here to provide for a review. The review provided by paragraph 27 of the order is akin to a post decisional hearing which is sometimes afforded after the making of some administrative orders, but not truly so.

It is a curious amalgam of a hearing which occasionally precedes a subordinate legislative activity such as the· fixing of municipal rates etc. that we mentioned earlier and a post-decision hearing after the making of an administrative or quasi-judicial order. It is a hearing -{ which follows a subordinate legislative activity intended to provide an opportunity to affected persons such as the manufacturers, the industry and the consumer public to bring to the notice of the subordi- nate legislating body the difficulties or problems experienced or likely to be experienced by them consequent on the price fixation, where- D upon the Government may make appropriate orders. Any decision taken by the Government cannot be confined to the individual manufacturer seeking review but must necessarily affect all manu- , )' facturers of the bulk drug as well as the consumer public. Since the maximum price of a bulk drug is required by paragraph 3 to be notified any fresh decision taken in the proceeding for review by way of modifi- E cation of the maximum price has to be made by a fresh notification fixing the new maximum price of the bulk drug. In other words, the ~- review if it is fruitful must result in fresh subordinate legislative acti- 7 vity. The true nature of the review provided by paragraph 27 in so far _.)., as it relates to the fixation of maximu.m price of bulk drugs under paragraph 3 leader price and prices of formulations under paragraphs 12 and 13 is hard to define. It is difficult to give it a label and to fit it into a pigeon-hole, legislative, administrative or quasi-judicial. Nor is it desirable to seek analogies and look to distant cousins for guidance. From the scheme of the Control Order and the context and content of paragraph 27, the Review in so far as it concerns the orders under paragraph 3, 12 and 13 appears to be in the nature of a legislative review of legislation, or more precisely a review of subordinate legisla- tion by a subordinate legislating body at the instance of an aggrieved person. Once we have ascertained the nature and character of the review, the further question regarding the scope and extent of the review is not very difficult to answer. The reviewing authority has the fullest freedom and discretion to prescribe its own procedure and con- H

874 SUPREME COURT REPORTS [1987] 2 S.C.R.

A sider the matter brought before it so long as it does not travel beyong the parameters prescribed by paragraph 3 in the ·case of a review y against an order under paragraph 3 and the respective other para- graphs in the case of other orders. But whatever procedure is adopted, it must be a procedure tuned to the situation. Manufacturers of any B bulk drug are either one or a few in number arid generally they may be presumed to be well informed persons, well able to take care of themselves; who have the assistance of Accountants, Advocates and ,... experts to advise and espouse their cause. In the context of the Drug industry with which we are concerned and in regard to which the ~. Control Order is made we must proceed on the basis that the • manufacturers of bulk drugs are generally persons who know all that is c to be known about the price fixed by the Government. From the legislative nature of the activity of the Government, it is clear that the Government is under no obligation to make any disclosure of any information received and considered by it in making the order but in >- order to render effective the right to seek a review given to an D aggrieved person we think that the Government, if so requested by the aggrieved manufacturer is under an obligation to disclose any relevant information which may reasonably be disclosed pertaining to 'the aver- age cost of production of the bulk drug manufactured by an efficient manufacturer' and 'the reasonable return on net worth'. For example, the manufacturer may require the Government to give information -r regarding the particulars detailed in Form No. 1 of the Fourth E Schedule which have been taken into account and those which have been excluded. The manufacturer may also require to be informed the elements which were taken into account and those which were excluded in assessing the 'free reserves' entering into the calculation of 'net worth'. These particulars which he may seek from the Govern- ~ .., ~- F ment are mentioned by us only by way of illustration. He may seek any other relevant information which the Government shall not unreason- ably deny. That we think is the nature and scope of the review cont em- plated by Paragraph 27 in relation to orders made under Paragraph·s 3, 12 and 13.

On the question of the scope of a Review, the learned counsel for the respondents invited our attention to Vrajla/ Manila/ & Co. v. Union of India & Anr., [1964] 7 SCR 97; Shivaji Nathubhai v. Union of 'r India & Ors., [1960] 2 SCR 775; Maneka Gandhi, [1978] 2 SCR 621; Swadeshi Cotton Mills, [1981] 2 SCR 533; and Liberty Oil Mills., [ 1984] 3 SCR 676. We are afraid none of these cases is of any assistance to the correspondence since the court was not concerned in any of

UNION v. CYNAMIDE LTD. [CHINNAPPA REDDY, J.] 875

those cases with a review of subordinate legislation by the subordinate legislating body.

In Vrajlal Manila/ & Co. v. Union of India & Anr. (supra) the court held that the Union of India when disposing of an application for review under Rule 59 of the Mines Concession Rules functioned as a quasi-judicial authority and was bound to observe the principles of natural justice. The decision rendered without disclosing the report of the State Government and without affording reasonable opportunity to the appellants to present their case was contrary to natural justice was therefore, void. In Shivaji Nathubhai v. Union of India & Ors., (supra) it was decided by the court that the power of review granted to the Central Government under Rule 54 of the Mineral Concession Rules required the authority to act judicially and its decision would be c a quasi-judicial act and the fact that Rule 54 gave power to the Central Government to pass such order as it may deem 'just and proper' did not negative the duty to act judicially. In Maneka Gandhi's case where Bhagwati, J. while expounding on natural justice pointed out that in appropriate cases where a pre-decisional hearing was impossible, there D must atleast be a post-decisional hearing so as to meet the requirement of the rule audi alteram partem. In Swadeshi Cotton Mills, it was observed that in cases where owing to the compulsion of the fact- situation or the necessity of taking speedy action, no pre-decisional hearing is given but the action is followed soon by a full post-decisional hearing to the person affected, there is in reality no exclusion of the E 'lludi alteram partem rule. It is no adaptation of the rule to meet the situational urgency. In Liberty Oil Mills v. Union of India, (supra) the question arose whether clause SB of the Import Control Order,. which ~ empowered the Central Government or the Chief Controller to keep

.J in abeyance applications for licences or allotment of imported goods where any investigation is pending into an imported goods where any investigation is pending into an allegation mentioned in clause 8 ex- cluded the application of the principles of natural justice. The court pointed out that it would be impermissible to interpret a statutory instrument to exclude natural justice unless the language of the instru- ment left no option to the court. As we said, these cases have no application to a review of subordinate legislation by the subordinate legislating body at the instance of a party.

We mentioned that the price fixed by the Government may be questioned on the ground that the considerations stipulated by the order as relevant were not taken into account. It may also be ques- ' tioned on any ground on which a subordinate legislation may be H

876 SUPREME COURT REPORTS [1987] 2 S.C.R.

A questioned, such as, being contrary to constitutional or other statutory provisions. It may be questioned on the ground of a denial of the right guaranteed by Art. 14 if it is arbitrary, that is, if either the guidelines prescribed for the determination are arbitrary or if, even though the guidelines are not arbitrary, the guidelines are worked in an arbitrary fashion. There is no question before us that paragraph 3 prescribes any B arbitrary guideline. It was, however, submitted that the guidelines were not adhered to and that facts and figures were arbitrarily as- sumed. We do not propose to delve into the question whether there has been any such arbitrary assumption of facts and figures. We think that if there is any grievance on that score, the proper thing for the ~·. manufacturers to do is bring it to the notice of the Government in their c applications for review. The learned counsel argued that they were unable to bring these facts to the notice of the Government as they were not furnished the basis on which the prices were fixed. On the other hand, it has been pointed out in the counter-affidavits filed on behalf of the Government that all necessary and required information was furnished in the course of the hearing of the review applications and· there was no D justification for the grievance that particulars were not furnished. We are satisfied that the procedure followed by the Government in fur- nishing the requisite particulars at the time of the hearing of the review applications is sufficient compliance with the demands of fair play in the case of the class of persons claiming to be affected by the fixation of maximum price under the Drugs (Prices Control) Order. As already '+·· E stated by us, manfuacturers of bulk drugs who claim to be affected by the Drugs (prices Control) Order, belong to a class of persons who are well and fully informed of every intricate detail and particular which is required to be taken into account in determining the price. In most cases, they are the sale manufacturers of the bulk drug and even if they ~ are not the sole manufacturers, they belong to the very select few who manufacture the bulk drug. It is impossible to conceive that they can- not sit across the table and discuss item by item with the reviewing \. authority unless they are furnished in advance full details and particu- lars. The affidavits filed on behalf of the Union of India show that the procedure which is adopted ih hearing the review applications is to discuss across the table the various items that have been taken into account. We do not consider that there is anything unfair in the proce- dure adopted by the Government. If necessary it is always open to the manufacturers to seek a short adjournment of the hearing of the re- view application to enable them to muster more facts and figures on their side. Indeed we find that the hearing given to the manufacturers is often protected. As we said we do not propose to examine this ques- H

UNION v. CYNAMIDE LTD. [CHINNAPPA REDDY. J.] 877

tion as we do not want to constitute ourselves in)o a court of appeal A ~ over the Government in the matter of price fixation. ' The learned counsel argued that there were several patent errors which came to light during the course of the hearing in the High Court. He said that obsolete quantitative usages had been taken into consi- B deration, proximate cost data had been ignored and the data relating to the year ending November, 1976 had been adopted as the basis. It was submitted that there were ~rrors in totalling, errors in the calcula- tion of prices of utilities, errors in the calculation of net-worth and "'·--many other similar errors. As we pointed out earlier, these are all matters which should legitimately be raised in the review application, if there is any substance in them. These are not matters for investiga- c tion in a petition under Art. 226 of the Constitution or under Art. 32 of the Constitution. Despite the pressing invitation of Shri Diwan to go into facts and figures and his elaborate submissions based on facts and figures, we have carefully and studiously refrained from making any reference to such facts and figures as we consider it outside our pro- vince to do so and we do not want to set any precedent as was sup- D· posed to have been done in Premier Automobiles though it was not so done and, therefore, needed explanation in later cases.

One of the submissions of Shri Diwan was that in calculating "net-worth" the cost of new works in progress and the amount in- E vested outside the business were excluded from 'free reserves' and that such exclusion could not be justified on any known principle of accountancy. We think that the question has to be decided with refer- ence to the definition of 'free reserve' in paragraph 2(g) of the Control Order and not on any assumed principle of accountancy. This is also a question which may be raised before the Government in the review F application. Referring to the 'proforma' attached to Form No. 1 of the Fourth Schedule in which are set out several items which have to be taken into account in assessing the cost of production, the learned counsel attacks the notes at the end of Item No. 14 which mentions the various items of expenses to be excluded in ascertaining the cost. The notes is as follows:- G "Notes:- (i) Items of expenses to be excluded from costs- (a) Bonus in excess of statutory minimum. (b) Bad debts and provisions. H

878 SUPREME COURT REPORTS [1987] 2 S.C.R.

A (c) Donations and charities. (d) Loss/Gain on sale of assets. t (e) Brokerage and commission. (f) Expenses not recognized by Income-tax B authorities (salary/prequisities, advertise- ments, etc.). (g) Adjustments relating to previous years."

In particular, he argued that Item (a) 'bonus in excess of statutory- ~. minimum' should not have been excluded so also items.of expenditure c coming under the other heads (b) to (g) which had been allowed by Income-tax authorities as legitimate expenses. His submission was that where bonus in excess of statutory minimum was payable under the provisions of the Bonus Act there was no option left to the manu- facturer not to pay/the excess bonus. Similarly where expenses have been legitimately incurred and allowed by Income-tax authorities, there was no justification for excluding those items of expenditure from the cost. We do not agree with the submission. It was open to the subordinate legislating body to prescribe and adopt its own mode of ascertaining the cost of production and the items to be included and excluded in so doing. The subordinate legislating body was under no obligation to adopt the method adopted by the Income-tax authorities in allowing expenses for the purpose of ascertaining income and asses- sing it. There may be many items of business expenditure which may be allowed by Income-tax authorities as legitimate expenses but which can never enter the cost of production. So long as the method pres- cribed and adopted by the subordinate legislating body is not arbitrary ~ F and opposed to the principal statutory provisions, it cannot be legiti- \ " mately questioned. Another submission of the learned counsel relating to the norms for conversion costs, packing charges and process loss of '°'· raw materials and packing materials required to the notified for the purpose of calculating retail prices of formulations. The argument, for example, was that there should be a more scientific formula in regard to conversion cost and not, as was done, so many rupees and paise per thousand capsules or one litre of liquid. We do not agree with the submission. It is open to the subordinate legislating authority to adopt a rough and ready but otherwise not unreasonable formula rather than a needlessly intricate so-called scientific formula. We are unable to say that the subordinate legislating authority acted unreasonably in prescribing the norms in the manner it has done.

UNION v. CYNAMIDE LTD. [CHl\:\APPA REDDY. J [ 879

While on the question on formulations, we would like to refer to the "Oration" of Dr. N .H. Antia at the 24th Annual Convocation of the Nati on al Academy of Medical Sciences where ·he posed the question:

"Why do we produce 60,000 formulations of drugs worth B ...... Rs.2,500 crores which rea ;h only 20% of the population when WHO recommends only 258 drugs and Rs.750 crores ~ worth would suffice for all our people if used in an ethical ' manner?'' • A general submission of the learned counsel was that the price of formulations should not have been prescribed until the review applica- c tion filed by the manufacturer in regard to the patent bulk drugs was -{ disposed of. He submitted that the price of a formulation was dependant on the price of the bulk drug and it was, therefore, not right to fix the price of formulation when the price of bulk drug was in question in the review application and there was a prospect of the price of the bulk drug being increased. We do not see any force in the submission. We think that it is the necessary duty of the Government to proceed to fix the retail price of a formulation as soon as the price of the parent bulk drug is fixed. Price fixation of a formulation is no

t doubt dependant on the price of the bulk drug, but it is not to await the result of a review application which in the end may tum out to be entirely without substance. If a review application is allowed and the price of the bulk drug is raised and if in the meanwhile, the formula- lion had been· ordered to be sold at a low price, it may result in considerable loss to the manufacturer. But on the other hand, if the J review application turns out to be entirely without substance and has to be rejected and if in the meanwhile the formulation is allowed to be ) sold at a higher price, the consumer public suffers. Thus, the ups and downs of commerce are inevitable and it is not possible to devise a fool proof system to take care of every possible defect and objection. It is certainly not a matter at which the court could take a hand. All that the cuurt may do is to direct the Government to dispose of the review application expeditiously according to a time-bound programme. All

~ G that the Government may do is to dispose of the review application with the utmost expedition. But as we perceive the public interest, it is necessary that the price of formulation should be fixed close on the heels of the fixation of bulk drug price.

Another submission of Shri Diwan was that there was consi- H derable delay it1 the disposal of the review applications by the Govern-

880 SUPREME COURT REPORTS [1987] 2 S.C.R.

ment and that even now no orders had been passed in several cases. A Accordingly to the learned counsel, the very delay in the disposal of review applications was sufficient to vitiate the entire proceeding and scheme of price fixation. According to the learned counsel, the price of a bulk drug is dependant on many variable ·factors which keep changing very fast. If time is allowed to lapse whatever price is fixed, it B soon becomes out of date. If review applications are not disposed of expeditiously the notifications fixing the prices must be struck down as having become obsolete. It is difficult to agree with these propositions. It is true t~at the price of a bulk drug is dependent on innumerable variables. But it does not follow that the notification fixing the maximum price must necessarily be struck down as obsolete by the mere passage of time. We agree that applications for review must be c dealt with expeditiously and whenever they are not so dealt with, the aggrieved person may seek a mandamus from the court to direct the Government to deal with the review application within a time frame- work.

D We notice that in all these matters, the High Court granted stay of implementation of the notifications fixing the maximum prices of bulk drugs and the· retail prices of formulations. We think that in matter of this nature, where prices of essential commodities are fixed · in order to maintain or increase supply of the commodities or for securing the equitable distribution and availability at fair prices of the E commodity, it is not right that the court should make any interim order staying the implementation of the notification fixing the prices. We consider that such orders are against the public intere~ and ought not to be made by a court unless the court is satisfied that no public interest is going to be served. In the present case, on ex-parte interim order was made on April 20, 1981 in the following terms: F "In the meanwhile on the petitioners' giving an under- takings to maintain prices both for bulk and formulation, as were prevailing prior to the impugned notification we stay implementation of the impugned bulk drug prices as well as formulation prices." G Thereafter on November 25, 1981, a further order was made to the

- following effect:

"After hearing learned counsel and with their con- sent, and arrangement has been worked out as on interim measure. We, therefore, confirm till further orders the

UNION v. CYNAMIDE LTD. (CH!NNAPPA REDDY, I.] 881

interim order made by us on April 20, 1981. The terms of the said order, that is on the undertaking given on behalf of the petitioners to maintain status quo on the prices prevail; ing prior to the issue of the impugned notification, the petitioners, through their counsel further given an under- taking to this court that, in case the petition is dismissed and the rule is discharged, the petitioners shall within eight weeks of the dismissal of the petition by this court, deposit in this court the difference in the prices of the formulations in question for being , . , . , . equalization account. The petitioners, through their counsel further given an under- taking that in this court the petitioners would not contend or challenge the said amount if deposited, is not liable to be deposited under any law whatsoever. It is made clear that c the undertaking is without prejudice to the petitioners' right to take appropriate directions from the_ Supreme Court if so advised in this regard."

No doubt the order as made on November 25, 1981 has. the D manufacturers on terms, but the consumer public has been left high and dry. Their interests have in no way been taken care of. In matters of fixation of price, it is the interest of the consumer public that must come first and any interim order must take care of that interest. It was argued by the learned counsel that the undertaking given by the parties lapsed with the disposal of the writ petition by the High Court E and that it could no longer be enforced. We do not agree with this submission. Apart from the fact that an appeal is ordinarily considered to be a continuation of the original proceeding, in the present case, we · notice that further orders of the Supreme Court were also in contem- plation and such further orders could only be if appeals were preferred to the Supreme Court. We do not think that there was any doubt in anyone's mind that the matter would be taken up in appeal to the Supreme Court whichever way the writ petitions were decided. We are of the view that the undertakings given by the parties in the present cases were intended to and do continue to subsist.

On the conclusions arrived at by us we have no doubt that the appeal must be allowed and tlie ·writ petition in the High Court dismis- sed. However, we think that it is necessary to give a direction to the Government to dispose of the review applications after giving a notice of hearing to the manufacturer. The hearing may be given within two months from today and the review application. disposed of within two weeks after the conclusion of the hearing. Any information sought by H

882 SUPREME COURT REPORTS [1987] 2 S.C.R.

A the manufacti:,-er may be given to him at the hearing in terms of what we have said in the judgment. The Union of India is entitled to the costs of the appeal and the writ petition in the High Court.

It appears that although several writ petitions filed by different manufacturers were disposed of by the High Court by a common judg- 8 ment, the Union of India filed an appeal within the prescribed period of limitation against one of the manufacturers, Cynamide India Limited only. This was apparently done under some misapprehension that it would be enough if a single appeal was filed. Later when it was realized that separate appeals were necessary, the Union of India filed petitions for special leave to appeal against the other manufacturers also. As these petitions were filed beyond the prescribed period of limitation, petitions for condoning the delay in filing the petitions for special leave to appeal had to be and were filed. These applications are strenuously opposed by the manufacturers who contend the ordinary rule which is enforced in cases of delay namely that everyday's delay must be properly explained should also be rigorously enforced against the Government. It is contended that the Government is a well verse litigant as compared with private litigants and even if there is justifica- tion of adopting a liberal approach in condoning delay in the case of private litigants there was no need to adopt such approach in the case of the Government. In cases like the present where parties have acted on the assumption that no appeals had been filed against them and have proceeded to arrange their affairs accordingly it would be unjust to condone the delay in filing the appeals at the instance of the Govern- ment. Though we see considerable force in the submission of Shri Diwan, we think that the circumstances of the instant cases do justify the exercise of our discretion to condone the delay. Two important features have weighed with us in condoning the delay. One is that all the writ petitions were disposed of by a· common judgment and an appeal had been filed in the principal case. The other is that it is a matter of serious concern to the public interest. We, therefore, con- done the delay, grant special leave in all the petitions for special leave and direct the appeals to be listed for hearing on May I, 1987.

P.S.S. Appeal allowed.