Holding

The Court held that the criteria in the Drug Policy 1994 are the definitive guide‑posts for the delegated legislation; ‘turnover’ means domestic sales value of the bulk drug (including formulations) excluding export sales; and the High Court’s judgment was erroneous, requiring the writ petitions to be reconsidered afresh.

Summary

The Union of India appealed against a Bombay High Court judgment that had quashed the inclusion of seven bulk drugs in the first schedule of the Drugs (Price Control) Order, 1995 and set aside price‑fixation notices. The Supreme Court held that the High Court erred by accepting the petitioners' facts without proper scrutiny and by not applying the criteria laid down in the Drug Policy, 1994. It clarified that ‘turnover’ means the domestic sales value of the bulk drug (including its use in formulations) and excludes export sales, and that only single‑ingredient formulators should be counted for the competition criterion. The Court emphasized that delegated legislation must conform to the policy’s criteria or it violates Article 14. Consequently, the High Court judgment was set aside and the writ petitions were restored for fresh consideration.

Issues considered

Whether the inclusion of the seven bulk drugs in the DPCO 1995 violates Article 14 due to non‑compliance with the Drug Policy 1994 criteria.
How the term ‘turnover’ in the Drug Policy 1994 is to be interpreted for price‑control purposes.
Whether export sales, production and import values can be counted towards turnover.
Whether ORG data can be solely relied upon to determine turnover and market share.
Whether only single‑ingredient formulators should be considered for the competition test under clause (iii) of para 22.7.2.
Whether the High Court’s approach of accepting the petitioners’ facts without detailed examination was permissible.
Whether there is any unlawful discrimination between different bulk drugs.

Legislation cited

Drugs & Cosmetics Act, 1940s. 2(a)
Essential Commodities Act, 1955s. 3

Subjects

Article 14delegated legislationprice controlbulk drugsturnoverDrug Policy 1994Drugs (Price Control) Order 1995essential commoditiesdiscriminationORG datamarket share

Judgment

SECRETARY, MINISTRY OF CHEMICALS AND FERTILIZERS A
GOVERNMENT OF INDIA
v.
M/S. CIPLA LTD. AND ORS.

AUGUST l, 2003
B
[S. RAJENDRA BABU, P. VENKATARAMA REDDI AND ARUN
KUMAR, JJ.) '

Constitution of India, 1950--Article 14-Drugs (Price Control) Ordrtr,
1995-First Schedule-Drug Policy, 1994-Para 22. 7.2-Bulk drugs and their C
formulations-:-lnclusion of bulk drugs in First Schedule to Control Order of
1995-Pricefixation by Government and directing manufacturers to deposit
overcharged amount-Writ petitions challenging the direction-High Court
holding that drugs should not have been brought within the Control Order' as
inclusion of drugs is opposed to the norms laid down by Central Government .D
in Drug Policy and, therefore, delegated legislative power exercised by
Government arbitrary and violative of Article 14-Justification of-Held:
Approach of High Court not correct in applying the criteria laid down in
Drug Policy in relation to each of the drugs-Further, by classifying the drug
for price control Government should not flout the norms which it proposed to
. follow in the public interest of transparency and objectivity-Delegated E
legislation-Administrative law.

Words and Phrases:

'Turnover'-Meaning of in the context of Drug Policy, 1994.
F
Central Government issued Drug Policy of 1994 and set out price
control criteria for drugs. The first criteria of including the drugs un<Jer
the price control was the minimum annual turnover of Rs. 4QO lacs subject
to second and third criteria. The second criteria was that where monopoly
situation prevails for any bulk drug, the minimum annual turnover sho~ld G
be Rs. 100 lacs and such situation exists where there is a single formulator
commanding 90% or more market share in the retail trade (as per ORG)
and the third criterion was that even if minimum annual turnover exceeds
Rs.400 lacs, drug will be kept outside price control in case there is sufficient
market competition, yardstick being that there are at least five producers
177 H
178 SUPREME COURT REPORTS [2003] SUPP. 2 S.C.R.

A of the particular bulk drug and at least ten formulators and none of them
have more than 40% market share in the retail trade.

Central Government promulgated Drugs (Price Control) Order,
1955 under which more number of drugs were subject fo price control.
Seven bulk drugs, namely, Salbutamol, Theophylline, Cyproflaxacin,
B Norfloxacin, Cloxacillin, Doxycycline and Glipizide were included in the
first schedule to the Drugs (Price Control) Order, 1995 and the prices were
fixed. National Pharmaceutical Pricing Authority then issued notices to
the respondent-manufacturers of such drugs to deposit overcharged
amounts in relation to the formulations of scheduled. drugs. Respondents
C .filed writ petition challenging the inclusion of the drugs and price fixation.
They contended that the norms set out in the Drug Policy have not been
adhered to while framing the I Sche~ule to DPCO, 1995, that the annual
turnover did not exceed the prescribed limit under the policy; and that
there was discrimination between one drug and other. Union of India filed
a counter affidavit. High Court accepted the claim of the writ petitioners
D as there was bald denial and the particulars given were not controverted
in the counter. It held that the Central Government acted contrary to its
own guidelines contained in Drug Policy, 1994 by taking export sales
figures and value of entire production of bulk drugs into account, and,
therefore the concerned drugs should not have been brought within the
E purview ofDPCO, 1995; and there could be no price fixation and quashed
the notices allowing the petitions. Hence the present appeals.

Appellants contended that the concerned bulk drugs were included
in the schedule only after being satisfied that they came within the ambit
of price control; that the value of total production plus imports of the bulk
F drug in the country determines the annual turnover; that export sales
could also be taken into account in arriving at the annual turnover; that
only the single ingredient formulations have to be taken into account for
purpose of working out the third criteria of the Drug Policy; that the
number of single ingredient formulators of the concerned bulk drug is not
discernible from ORG data; and that High Court cannot sit in judgment
G over the exercise done by experts.

Respondents-manufacturers of drugs contended that the seven bulk
drugs are to be excluded from the spari of control under the Drug Policy
of 1994; that the annual turnover is the sales of bulk drug within the
H country either in the same form or by way of formulations and has nothing
SECY. MINISTRY OF CHEMICALS AND FERTILIZERS, GOVT. OF INDIA''- CIPLA LID. l 79

to do with export sales; that the entirety of production and imports cannot A
be regarded as turnover; that the bulk drugs are sold mostly in the form
of formulations and the quantities of bulk drug utilized in such
formulations are given in ORG data, from which the bulk drug turnover
can be ascertained; that there is no distinction between the single
ingredient formulators and formulations of bulk drug containing one or B
more other bulk drug; and that the expression. 'may' occurring in third
criteria of the Drug Policy confers discretion and flexibility in approach
of the Government of India to include the drug in the Schedule for good
reasons even if a particular bulk drug stands outside price control by the
application of such criteria.

Allowing the appeals, the Court
c
HELD: 1. The approach of High Court in considering t~e question
of applicability of criteria laid down in the Drug Policy of 1994 in relation
of each of the drugs is not correct and it failed to address itself to various
crucial aspects. Therefore, the judgment of High Court is set aside and D
the writ petitions out of which these appeals arose is restored to the file
of High Court and High Court will consider afresh the relevant aspects
concerning the criteria laid down in the Drug Policy, 1994 in relation to
each drug. [197-E; 202-F)

2.1 Where the Central Government as the delegate of legislative E
power announces a rational policy in keeping with the purposes of enabling
legislation and even lays down specific criteria to promote the policy, the
criteria so evolved become the guide-posts of its legislative action. While
classifying the drugs for the purpose of price control, it is not open to the
Government to flout or debilitate the set norms which it professed to follow F
in the interest of transparency and objectivity. Otherwise, there will be
an element of arbitrariness and the delegated legislation will not withstand
the test of Article 14. [201-E-F)

Indian Express Newspapers v. Union of India, [1985) 1 SCC 641,
referred to. G
2.2. The expression 'turnover' in Drug Policy, 1994 represents the
sale value of bulk drug sold as such or in the form of formulations. The
sum total of production and imports of bulk drug cannot be equated to
turnover, though they are not altogether irrelevant in calculating the
turnover. (201-G-HJ H
180 SUPREME COURT REPORTS [2003] SUPP. 2 S.C.R.

A 2.3. Export sales should not be taken into account while computing
turnover. (201-G]

2.4. ORG data does not give exhaustive account of turn over of bulk
drug. It relates to sales of formulations made either exclusively out of the
bulk drug or in combination with other drugs. It may furnish the basis
B for estimating the turnover, but is not the sole guide. Furthermore, from
the ORG data, it may not be possible to ascertain whether the formulation
is made up of s·ingle ingredient of the bulk drug or it has multi-ingredients.
(202-A; 197-F; 198-C)

2.5. For the purpose of the third criteria of the Drug Policy, the single
C ingredient formulations alone ought to be taken into account as clarified
by the Government of India. This view cannot be said to be against the
policy or otherwise unreasonable. (202-B]

2.6. It cannot be said that the expression 'may' occurring in third
D criteria of the Drug Policy confers discretion and flexibility in approach
of the Government as it is not the case of the Government that for any
particular reason or reasons, the bulk drug concerned was brought within
the purview of price control, though it qualifies for exclusion. Even
assuming that the discretion is available in terms of the policy, the factum
of exercising such discretion for relevant reasons should be disclosed, in
E the absence of which, the Court must proceed on the basis that the
Government stood by the criteria and saw no need to deviate therefrom.
(191-H; 192-A-C)

2.7. The plea of discrimination between one drug and another is
unfounded and.should not have been accepted by High Court. (202-E)
F
2.8. Sales of bulk drugs effected during the year by bulk drug
producers including some of the respondents would have furnished the best
indicia of domestic sale turnover of bulk drug. But, those details were not
disclosed. Further, if the bulk drug produced was consumed by any bulk
G drug producer or importer and the drug was sold in the form of
formulations, the statistics regarding the quantum of bulk drug utilitized
in such formulations and the value thereof must have been within the
knowledge or reach of writ petitioners and there is no good reason why
they should withhold all this relevant information and harp on ORG data.
There is no need to resort to guess-work when the actual figures are
H available. [198-D-Fl
SECY.MINISTRYOFCHEMICALSANDFERTILIZERS, GOVT.Of INDIA v.CIPLA LTD. 181

2.9. Burden lies on those who challenge the legislation on the groun,d A
of violation of Article 14 to make out their case by furnishing all the
relevant material which is within their reach and knowledge, there should
be frank disclosure of material facts, more so, when the plea is founded
on certain factual aspects. The mere vagueness or lack of clarity in ti.e
stand taken by the Union of India does not by itself advance the case of B
the writ petitioners. (202-8-C)

2.10. The plea of writ petitioners ought to have been tested and
subjected to scrutiny in the light of all relevant factors instead of merely
considering whether the particulars furnished by the petitioners were
effectively controverted or not. Such an approach of the High Court· is C
wholly impermissible while deciding the validity of legislation - plenary
or delegated, from the stand point of Article 14. (202-D-E]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3375-3384 of
2002.

From the Judgment and Order dated 31.8.200 l of the Mumbai High D
Court in W.P. Nos. 1749/99, 1974, 2019, 2051, 2060, 1758/2000,3449, 3031,
5219/96, C.P. No. 96/2000 in W.P. No. 1749/99.

K.N. Rawat, Solicitor General, Ashok Desai, K.C. Cooper, P.
Chidambaram, R.F. Nariman, Maninder Singh, Ankur Talwar, Ms. Pratibha
M. Singh, Angad Chopra, Soli Cooper, K.S. Cooper, R.N. Karanjawala, Ms. E
Ruby Singh Ahuja, Ms. Megna Mishra, Ms. Nandini Gore, Ms. Seema Sund,
Mrs. Manik Karanjawala, Sri Raj Dhrue, Mahesh Agrawala, E.C. Agar . vala,
U.A. Rana, Ms. Anuradha Priyadarshini for Mis. Gagrat & Co. for the
appearing parties.

The Judgment of the Court was delivered by F
P. VENKATARAMA REDDI, J. l.l. These appeals by special leave
preferred by the Union of India are directed against the common judgment
of the Bombay High Court in a batch of writ petitions filed under Article 226
of the Constitution by the manufacturers/importers of certain bulk drugs and G
their formulations. The bulk drugs concerned are seven in number. They are:
Salbutamol, Theophylline, Cyproflaxacin, Norfloxacin, Cloxacillin,
Doxycycline and Glipizide. These bulk drugs and the formulations made out
of them are sold within the country and part of the quantities produced are
also exported outside the country. The challenge is to the inclusion o~ the
said bulk drugs in the first schedule to the Drugs (Price Control) Order, 1995 H
182 SUPREME COURT REPORTS (2003] SUPP. 2 S.C.R.

A (hereinafter referred to as 'the DPCO'). Though the fixation of price pursuant
to the provisions of the said Order was also challenged in some of the writ
petitions, that issue was not gone into by the High Court and at any rate, the
mechanics of price fixation is not the contentious issue before us. However,
it may be noted that the remedy by way of review is available under paragraph
22 of the DPCO to seek reconsideration of price fixation. The immediate
B provocation for filing the writ petitions in the High Court seems to be the
notices issued by the National Pharmaceutical Pricing Authority, calling upon
some of the Respondent-Companies to deposit the overcharged .amount~ in
relation to the formulations of schedul_ed drugs.

1.2. The High Court held that the concerned drugs should not have
C been orought within the purview of the DPCO, 1995 and consequently, there
could be no fixation of price in relation to those drugs. The notices demanding
overcharged amounts were quashed. The writ petitions were thus allowed by
the Division Bench of High Court.

2.1. The DPCO, 1995 which came into force on 6th January, 1995, was
D promulgated by the Central Government in exercise of the powers conferred
by Section 3 of the Essential Commodities Act. It repealed the earlier DPCO
of 1987, under which more number of drugs were subjected to price control.
'Drug' as defined in Drugs & Cosmetics Act is one of the essential
commodities.
E 2.2. According to Section 2(a) of DPCO, 'Bulk Drug' means any
pharmaceutical, chemica.I, biological or plant product including its salts, esters,
stereo-isomers and derivatives, conforming to pharmacopoeia or other
standards specified in the Second Schedule to the Drugs and Cosmetics Act,
1940 and which is used as such. or as an ingredient in any formulation.
F 'Formulation' is defined to mean a medicine processed out of, or containing
one or more bulk drug or drugs with or without the use of any pharmaceutical
aids, for internal or external use in the diagnosis, treatment, mitigation or
prevention of disease in human beings or animals. ·

2.3. Paragraph 3 of DPCO empowers the Central Government to fix,
G from time to time, a maximum sale price at which the bulk drug specified i~
the first schedule shall be sold, after making such inquiry, as it deems fit. The
opening clause of sub-para (1) spells out the avowed purpose of price control
on the scheduled bulk drugs.The declared objective is to regulate the equitable
distribution and increasing supplies of the specified bulk drug and making
them available at a fair price. There is a prohibition against the sale of bulk
H drug at a price exceeding the l.Tlaximum sale price fixed under sub-paragraph
SECY. MINISTRY OF CHEMICALS AND FERTILIZERS, GOVT. OF INDIA 1·. CIPLA LTD. [REDD!, J.) } 83

(l) plus local taxes, if any. As already observed, we are not concerned here A
with the modalities of fixation of price. The. very inclusion of these bulk
drugs in the schedule is being assailed on the ground that it is opposed to tqe
r norms laid down by the Central Government itself in the Drug Policy of 1994
and, therefore, the delegated legislative power exercised by the Government
is arbitrary and violative of Article 14 of the Constitution. The plea of the B
respondents was accepted by the High Court.

2.4. In the Drug Policy document issued on 15th September, 1994, the
Central Government noticed that during the last decade, the drug industry
had grown significantly in terms of production of bulk drugs and formulations
and the export performance of the industry had been commendable. It w!!S C
said that the pharmaceutical sector had been able to carve a special niche for
itself in the international market as a dependable exporter of bulk drugs. The
drug policy with regard to pricing has been stated thus in paragraph 9 of the
policy Paper:

"9. Pricing-The aberrations which have come to notice, in the listing D
of drugs and their categorization for the purpose of price control,
need to be eliminated by the use of transparent criteria applied across
the board on all the drugs with the minimum use of subjectivity. The
high turnover of a drug is an index of its extent of usage and is
considered to meet the requirements of objectivity justifiable on
economic considerations. However, the monopoly situation in cases E
of drugs with comparatively lower turnover has also to be kept in
view. Also, as an experimental measure, drugs having adequate
competition may not be kept under price control and if this proves
successful it would pave the way for further liberalization. In the
event, however, of prices of these drugs not remaining within p
reasonable limits, the Government would reclamp price control.

In paragraph 11, it is stated-

"In the light of the apprehensions expressed in the Parliament on ,the
likely spurt in the prices of medicines, it has been felt that it would
not be desirable to allow automaticity in the pricing mechanism, The G
Government would set up an independent body of experts, to, be
called the National Pharmaceutical Pricing Authority, to do the work
of price fixation. This expert body would also be entrusted with the
task of updating the list of drugs under price control each year on: the
basis of the established criteria/guidelines .... " H
184 SUPREME COURT REPORTS (2003) SUPP. 2 S.C.R.

A 2.5. The Government's resolve to closely monitor the trends of prices
of medicines and to take appropriate measures to reclamp price control in
case the prices of such medicines rise unreasonably, has been stressed in
paragraph 12. Then, we come to the most important paragraph in the Drug
Policy i.e., 22.7.2 which bears the heading 'Span of Control'. It sets out the
B Ci'iteria for bringing the drugs under price control. We quote paragraph 22.7.2:-

22.7.2. Span of Control-
(i) The criterion of including drugs under price control would be
the minimum annual turnover of Rs.400 lakhs.

c (ii) Drugs of popular use in which there is a monopoly situation be
kept under price control. For this purpose for any bulk drug,
having an annual turnover of Rs.100 lakhs or more there is a
single formulator having 90% or more market share in the Retail
Trade (as per ORG) a monopoly situation would be considered
as existing.
])
(iii) Drugs in which there is sufficient market competition viz., at
least 5 bulk drug producers and at least IO formulators and none
having more than the 40% market share in the Retail Trade (as
per ORG) may be kept outside the price control. However, a
strict watch would be kept on the movement of prices as it is
E expected that their prices would be kept in check by the forces
of market competition. The Government may determine the ceiling
levels beyond which increase in prices would not be permissible.
(iv) Government will keep a close watch on the prices of medicines
which are taken out of price control. In case, the pr~ces of these
F medicines ·rise unreasonably, the Government would take
appropriate measures, including reclamping of price 'control. (v)
For applying the above criteria, to start with, the basis would be
the data upto 31st March, 1990 collected for the exercise of the
Review of the Drug Policy. The updating of the data will be
done by the National Pharmaceutical Pricing Authority as detailed
G in para 22.7.4(i).
3. The central theme of the arguments is that the norms set out in sub-
Paras (i), (ii) & (iii) have not been adhered to by the Government while
framing the first schedule to DPCO in purported implementation of the drug
policy. There was either deviation from the criteria set out or there was no
H scientific or rational assessment of the factors relevant to the norms. Most of
SECY.MINISTRY OF CHEMICALS AND FERTILIZERS, GOVT. OF INDIA"· CIPLA LTD. [REDD!, J.Jl 85

the arguments centered round the interpretation of the three clauses in para A
22. 7.2-an exercise which is usually associated with the construction of statutes.
The sum and substance of the arguments on behalf of the respondents is that
the seven bulk drugs get excluded from the span of control under one or
more norms spelt out in para 22.7.2, whereas the stand of the appellants is
that the concerned bulk drugs were included in the schedule only after being B
satisfied that they came within the ambit of price control criteria. It is also
the contention of the appellant that the Government's decision to bring these
important bulk drugs within price control is in accordance with the objectives
underlying in Section 3 of the Essential Commodities Act, particularly, the
interests of consumers. Every attempt was made to examine the facts artd
figures by an Expert Group of the standing committee, keeping in view the C
prescribed norms in Drug Policy. It is pointed out that the High Court cannot
go into the intricacies of price fixation under Article 226 of the Constitution
or sit in judgment over the exercise done by experts.

4.1. It is axiomatic that the contents of a policy document cannot be
read and interpreted as statutory provisions. Too much of legalism cannot be D
imported in understanding the scope and meaning of the clauses contained in
policy formulations. At the same time, the Central Government which
combines the dual role of policy-maker and the delegate of legislative power,
cannot at its sweet will and pleasure give a go-bye to the policy guidelines
evolved by itself in the matter of selection of drugs for price control. The E
Government itself stressed the need to evolve and adopt transparent crit~ria
to be applied across the board so as to minimize the scope for subjective
approach and therefore came forward with specific criteria. It is nobody's
case that for any good reasons, the policy or norms have been changed or
became impracticable of compliance. That being the case, the Government
exercising its delegated legislative power should make a real and earnest F
attempt to apply the criteria laid down by itself. The delegated legislation that
follows the policy formulation should be broadly and substantially in
conformity with that policy; otherwise it would be vulnerable to attack on the
0
ground of arbitrariness resulting in violation of Article 14.

4.2. In Indian Express Newspapers v. Union of India, [1985] l SCC G
Page 641 ], the grounds on which subordinate legislation can be questioned
were outlined by this Court. E.S. Venkataramfah, J. observed thus:

"A piece of subordinate legislation does not carry the same degree of
immunity which is enjoyed by a statute passed by a competent
H
186 SUPREME COURT REPORTS (2003] SUPP. 2 S.C.R.

A Legislature. Subordinate legislation may be questioned on any of the
grounds on which plenary legislation is questioned. In addition it
may also be questioned on the ground that it does not conform to the
statute under which it is made.

*********
B
It may also be questioned on the ground that it is unreasonable,
unreasonable not in the sense of not being reasonable, but in. the
sense that it is manifestly arbitrary. In England, the Judges would say
"Parliament never intended authority to make such rules. They are
unreasonable and ultra vires."
c
4.3. True, the breach of policy. decision by itself is not a ground to
invalidate delegated legislation. But, in a case like this, the inevitable fallout
of the breach of policy decision which the Government itself treated as a
charter for the resultant legislation is to leave an imprint of arbitrariness on
the legislation. When the selection or classification of certain drugs is involved
D for the purpose of price control, such selection or classification should be on
rational basis and cannot be strikingly arbitrary. No doubt, in such matters,
wide latitude is conceded to the legislature or its delegate. Broadly, the
subordinat~ law-making authority is guided by the policy and objectives of
primary legislation disclosed by preamble and other provisions. The delegated
E legislation need not be modelled on a set pattern or pre-fixed guidelines.
However, where the delegate goes a step further, draws up and announces a
rational policy in keeping with the purposes of enabling legislation and even
Jays down specific criteria to promote the policy, the criteria so evolved
become the guide-posts for its legislative action. In that sense, its freedom of
classification will be regulated by the self-evolved criteria and there should
F be demonstrable justification for deviating therefrom. Though exactitude and
meticulous conformance is not what is required, it is not open to the
Government to go hay-wire md flout or debilitate the set norms either by
giving distorted meaning to them or by disregarding the very facts and factors
which it pr~fessed to take into account in the interest of transparency and
G objectivity. Otherwise, the legislative act of the delegate in choosing some
drugs for price control while leaving others will attract the wrath of Article
14. That is why the Union of India has taken the stand throughout that it
stood by the policy while framing the legislation and that there was every
endeavour to apply the criteria spelt out in the Drug Policy of 1994 before
including the drugs in question in the first schedule. The correctness of this .
H contention should, of course, be examined.
SECY. MINISTRY OF CHEMICALS AND FERTILIZERS, GOVT. OF INDIA'" t::IPLA LTD. [REDDI, J.] 187

5.1. With this prologue, let us proceed to analyze the three relevant A
criteria in the drug policy. According to the first criterion, for bringing the
drugs under th~ price control, the minimum annual turnover of the drug
should be 400 lacs. However, this requirement is qualified by and subject to
the criteria laid down in (ii) & (iii).Where a monopoly situation prevails in
respect of any bulk drug, the minimum annual turnover requirement gets
reduced to I 00 lacs. The monopoly situation is deemed to exist where there B
is a single formulator commanding 90% or ~ore market share in the retail
trade (as per ORG data). According to the 3rd criterion, even if minimum
annual turnover exceeds 400 lacs, the drug will be kept outside price control
in case there is sufficient market competition. The yardstick for assessing
whether there is sufficient market competition, according to clause (iii) is that C
there are at least five producers of the particular bulk drug and at least ten
formulators and none of them have more than 40% market share in the retail
trade (as per ORG data).

The said criteria have to be worked out with reference to the data
available upto 31st March, 1990 which means, the relevant facts and figures D
relating to the financial year 1989-90 have to be taken into account. This is
not in dispute.

5.2: As already noted, there is no quarrel about the criteria that has
been laid down. It is not the case of the Union of India that any diffe~ent
criteria had been applied while promulgating the DPCO of 1995. The E
controver.sy revolves round its actual application or methodology of working
out the criteria. What is the annual turnover made up of? In other words, how
to work out the turnover figures? Is there sufficient market competition as
contemplated by clause (iii)? It is with 'reference to these two aspects that the
Government's stand has not been accepted and the writ petitioner's contention p
found its acceptance by the High Court.

5.3. First, we shall take up the issue of 'annual turnover'. The stand of
the appellant, as discernible from the affidavits on record sworn to by the
officials' of the Department of Chemicals and Petrochemicais, Government of
India is that the turnover of bulk drug ought not to be mixed up with retail G
sale data of the fonnulations of that bulk drug; in other words, the retail sale
data pertains to formulations of a bulk drug and not to the bulk drug itself.
The broad manner in which the turnover has been assessed is indicated in
paragraph 8 of the rejoinder affidavit filed in SLPs. It is stated that the expert
group of the Standing Committee which went into the whole issue of exclusion/ H
188 SUPREME COURT REPORTS (2003) SUPP. 2 S.C.R.

A inclusion of drugs under price control "took the data for turnover of the bulk
drugs comprising of the value of its total production in the country and value
of weighted average of landed cost of total imports into the country, as the
basis for viewing the price scenario from different points of view". It is then
stated in paragraph IO - "In the further respectful submission of the petitioner
the intent behind using the said word (turnover) has been to determine the
B extent of usage of a bulk drug in the country (emphasis supplied). This was
the measure adopted by the e~pert group in case of each bulk drug by taking
into account the aggregate of its total imports into the country and its total
indigenous production in the country. This has been the connotation of the
word 'turnover' at various levels throughout the deliberations and in
C implementation of the policy through DPCO 1995 and was never confined to
the narrow connotation of the word 'sales turnover' ".In short, it is submitted
(vide paragraph 13) that the value of total production plus imports of the bulk
drug in the country determines the annual turnover for the purpose of clauses
(i) & (ii) of para 22.7.2. As a corollary to this stand, the contention advanced
on behalf of the Union of India is that export sales could also be taken into
D accou:it in arriving at the annual turnover. According to the respondents (writ
petitioners), the annual turnover could only mean sales of bulk drug within

E
the country either in the same form or by way of formulations and it has
nothing to do with export sales. The entirety of production and imports
cannot be regarded as turnover. It is submitted by the respondents that the
bulk drugs are sold mostly in the form of formulations and the quantities of
-
bulk drugs utilized in such formulations are given in ORG data. From this,
the bulk drug turnover can be easily ascertained. The sales of the bulk drugs
as such to the institutions etc., will be negligible i.e., about 15%, as per the
certificate issued by ORG in one of the cases. It is, therefore, commented that
the contention that the ORG data does not afford the basis for ascertaining
F the annual turnover of the bulk drug, is untenable.

5.4. The High Court, substantially agreeing with the contentio1is of the
respondents-writ petitioners held that the expression 'turnover' occurring in
Drugs Policy can only mean domestic sales figures and nothing else. Export
G sales cannot be included within the ambit of turnover. The High Court observed
that the concepts of 'turnover' and 'market share' are interrelated and inter-
dependent. The expression 'turnover', if interpreted in a contextual and
purposive manner, would not include exports. The extent of usage of the bulk
drug in the country would be determinative of turnover. By taking the export
sale figures and the value of entire production of bulk drugs into account, the
H Central Government had acted contrary to its own guidelines contained in
SECY. MINISTRY OF CHEMICALS AND FERTILIZERS, GOVT. OF INDIA 1•. CIPLA LTD. [REDD!, J.) 189

Drug Policy, 1994. The High Court then proceeded to discuss whether each A
of the drugs concerned could be brought within the purview of DCPO, 1995
and answered that question in favour of the writ petitioners.

5.5. Before proceeding further, we may notice that the National
Pharmaceutical Pricing Authority (NPPA) constituted by the Government of
India considered the representation of Bulk Drugs Manufacturers Association B
(BDMA) on the subject of inclusion/exclusion of drugs under DPCO. The
NPPA passed a reasoned order rejecting the representation on dt. 6.4.1998.
In that order, the issues raised by BDMA regarding exclusion of six out of
eight drugs with which we are concerned, were considered by the said
authority. There was however no consideration as regards two drugs, namely, C
Doxycycline and Glipizide, probably because the representation did not c9ver
those two drugs.

5.6. Before we take up the issue of export sales, it is necessary to
understand the true import and expanse of the expression 'turnover' occurring
in clause (i) of para 22.7.2 of the Drug Policy, 1994. What is the 'turno~er' D
contemplated by the said paragraph? Can it be equated to the value of imported
bulk drug and its production, as contended by the appellant OR should it be
equated to the actual sales within the country? Should the export sales be
included in turnover? These are the questions to which this Court has to
address itself.
E
5.7. 'Turnover' in its ordinary sense connotes amount of business usually
expressed in terms of gross revenue transacted during a specified period
(vide Collins Dictionary). Broadly speaking, it represents the value of the
goods or services sold or supplied during a period of time. The amount of
money turned over or drawn in a business during certain period, is another F
shade of meaning. We need not refer to the definition of 'turnover' in Sales
tax and other fiscal enactments-reliance on which was placed by some of the
learned counsel as they are not quite relevant for the purpose of understanding
the expression 'turnover' occurring in a policy document. Nor should we
seek any assistance from the definition of 'sale turnover' occurring in DPCO
in a different context and for a different purpose. Going by its ordinary G
meaning and the way in which it is commonly understood in trade and
commerce, it is difficult to equate turnover to the value of stock acquired
either by means of imports or production. For instance, the entire stock in
trade, say, lying in a godown and not circulated in business, cannot be regarded
as turnover, even giving broadest meaning to the expression 'turnover'. The H
190 SUPREME COURT REPORTS [2003) SUPP. 2 S.C.R.

A reasoning which could be spelt out from the order passed by NPPA (referred
.
to supra) and in the counter affidavits filed by the appellants that indigenous.
production plus imports furnishes an indicia of the total business in the country
in relation to a particular bulk drug, cannot be accepted. It is only what is
sold out and marketed that could be legitimately regarded as turnover of the
B specified drug. It may be that in the absence of availability of reliable data
regarding sales, the import value and production value could be the basis to
estimate the sale value after giving due allowance to various factors such as
wastage, unsold stocks etc. But, treating the turnover as nothing but the value
of stock produced or imported during a given period will be doing violence
to the ordinarily accepted meaning of the expression 'turnover'. There can be
C no presumption that the entire stock of bulk drug produced or imported
during the year had been sold out during that year either in the form of
formulations or otherwise. However, we would like to make it clear that the
production and import statistics are not altogether irrelevant. They are relevant
in the sense that they furnish some basis for estimating the sales when there
is no other reliable and comprehensive data of sales available.
D
5.8. The question whether export sales should also be taken into account
in computing the annual turnover needs to be discussed now. There can be
no doubt that the meaning of the expression 'turnover' either in its ordinary
or legal sense includes export sales. But, we must have regard to the terms
E and objectives of the policy and try to understand that expression accordingly.
Para 9 of the Drug Policy, 1994 makes it clear that the high turnover of a
drug is an index of its extent of usage. 'Usage' has obvious reference to
consumption and consumption within the domestic market. Whether the drug
is extensively used within the country is one of the considerations kept in
view to clamp price control. The export potential of the drug or its usage in
F foreign countries could not have been the reason to notify the specified drugs
for price control.If there is any doubt in this regard, it is dispelled by what
is stated in paragraph IO of the rejoinder affidavit which we quoted supra. To
repeat, it was stated therein that the intent behind using the word 'turnover'
has been to determine the extent of usage of a bulk drug in the country. It
is also pertinent to note that the Govt. of India has not come forward with
G any explanation as to why export sales also should be taken into account in
assessing the turnover as per the criteria laid down in the Drug Policy For all
these reasons, we are in agreement with the High Court that the export sales
ought to have been exc;luded while calculating the turnover. How far the
exclusion of export sales would make any difference is a different matter.
H
•
SECY. MINISTRY OF CHEMICALS AND FERTILIZERS, GOVT. OF INDIA"· CIPLA LTD. [REDDI, J.J) 9 J

5.9. Another grey area which has surfaced in the backdrop of the Drug A
Policy, I 994 is whether for the purpose of clause (iii), the expression
'formulators' should be confined to single ingredient formulators or it should
extend to multi-ingredient formulators as well. The NPPA while rejecting the
representation of the Bulk Drug Manufacturers' Association, referred to the
clarification issued by the Government of India in its communication dated B
10.6.1997 addressed to one of the writ petitioners which is as follows:

"The basis of the single ingredient fonnulation as against that of the
combination formulation (for purpose of calculating market share), is
not only justified on account of predominance of single ingredient
formulation, on over all basis, but also vindicates the objective of C
•, "promoting the rational use of drugs in the country" mentioned in
paragraph I(b) of the "Modifications in Drug Policy, 1986". The
Principle of covering only single ingredient fcnnulations, for purposes
of calculating market share is a transparent, objective and verifiable
principle and hence suitable for policy issues. Fonnulations of a bulk
drug, containing one or more other bulk drug are not comparable in D
tenns of their sales values. Therefore, it is practically not possible to
apply the criteria relating to market share of a formulator of a bulk
drug on the basis of data of its combination formulations, across the
board, in a transparent, objective and verifiable manner as required
-\
for policy issues."
E
It is, therefore, contended by the Union of India that only single
ingredient formulations have to be taken into account for the purpose of
working out the criterion in clause (iii) and that the number of single ingredient'
fonnulators of the concerned bulk drug is not discernible from ORG data. Of
course, it is the contention of the respondents that no such distinction can be F
drawn. It is contended that such distinction is irrational.

In our view, the clarification given by the Government of India reflects
a reasonable view point and it cannot be said that by adopting such approach,
a distorted meaning is given to the expression 'formulator' much against the

., spirit of the policy. At any rate, two views are possible and it is not for the
Court to decide which view is preferable .
G

6. Before closing the discussion on the controversies surrounding t~e
criteria evolved in the Drug Policy, there is one argument of the learned .
Solicitor General which we would like to refer to. The learned Solicitor .
General argued that the expression 'may' occurring in ,clause (iii) of para H
192 SUPREME COURT REPOR'FS [2003) SUPP. 2 S.C.R.

A 22.7.2 of the Drug Policy confers discretion and flexibility in approach to the
Government of India. Even if a particular bulk drug stands outside price
control by the application of such criteria, the discretion is still left to the
Government to include the drug in the Schedule for good reasons. This
argument cannot be countenanced for the simple reason that it is not the case
B of the Government that for any particular reason or reasons, the bulk drug
concerned was brought within the purview of price control, though the drug
qualifies for exclusion underclause (iii). Even assuming that the discretion is
available in terms of the policy, the factum of exercising such discretion for
relevant reasons should be disclosed. In the absence of such disclosure, the
Court must proceed on the basis that the Government stood by the criteria
C and saw no need to deviate therefrom.

7.1. Now it is necessary to advert to the nature of the claim made by
the writ petitioners in relation to each of the bulk drugs, the stand taken by
the Union of India and the conclusions of the High Court.

D 7.2. Salbutamol: According to the writ petitioner-Company, the annual
turnover for the year ending March, 1990 was Rs.171.17 lacs based on the
ORG data. The sales of formulations in domestic market has been taken as
the basis to calculate the consumption. It is then multiplied by the notified
price prevalent during the relevant period. It is the further case of the writ
petitioner that there were as many as 24 formulators including the petitioner,
E none of whom had the market share of more than 40%. Admittedly, there
were more than five bulk drug producers. The writ petitioner-Company,
therefore, claimed the benefit of exclusion both under clause (i) and (iii) of
para 22.7.2 of the Drug Policy, 1994. The Government of India took the
stand that the bulk drug turnover was Rs.11.50 crores based on the value of
p domestic production and imports. Moreover, there were only seven known
formulators of the bulk drug. Therefore, it is contended that the drug
Salbutamol does not qualify for exclusion either. under clause (i) or (iii). The
High Court accepted the claim of the petitioner-Company on t~e ground that
in the counter-affidavit filed by the Union of India, there was only a bald
denial and the details given by the writ petitioners were not controverted.
G
7.3.Theophylline: The writ petitioners claimed exclusion underclause
(iii). The names of six bulk drug producers and 31 formulators were given
in the writ petition. In the counter-affidavit, it was merely stated that there
were less than five known manufacturers of bulk drug and less than 10
H known formulators of the bulk drug and therefore the drug Theophyllin() did
SECY. MINISTRY OF CHEMICALS AND FERTILIZERS, GOVT. OF INDIA 1·. CIPLA LTD. [REDD!, J.] J93

not qualify for exclusion under clause (iii). The High Court observed that the A
particulars furnished by the petitioner were not effectively controverted, there
being only a bald denial. It was therefore held that the drug ought not to have
been brought under price control. As per the statement furnished by the
learned Solicitor General at the time of hearing, the fact that there were ihore
than five bulk drug producers, was accepted but the number of formulators B
was given as seven. Therefore, the dispute is confined to the number of
fonnulators, the term 'formulator' being understood in the sense ii! which the
Government of India explained in its clarificatory letter dated 6-4-1998.

7.4. Cloxacillin : The writ petitioners concerned are said to be the
manufacturers of fonnulations made out of Cloxacillin. There is no dispute C
that the annual turnover at the relevant time was much more than 400 lacs.
The writ petitioners claimed exclusion of the drug Cloxacillin on the basis of
clause (iii) of para 22.7.2. According to them, there were as many as 16 bulk
drug producers and 23 fonnulators in respect of Cloxacillin and none of the
fonnulators had more than 40% market share as per the ORG figures for the
year 1989-90 (upto March 1990). The High Court accepted the case of the D
petitioners on the ground that the factual particulars were not controverted,
but there was only a bald denial in the counter affidavit filed by Union of
India. The counter-affidavit of Union of India is not found either in S.L.P.
paper books or the original record of High Court. However, the stand of
Union of India, as is clear from the reply dated 6.4.1998 of the NPPA sent E
to the Bulk Drug Manufacturers' Association as well as the Grounds of SLP
is that the number of single ingredient fonnulators of the drug was less than
• 10. According to the statement furnished by the learned Solicitor General in
the course of the arguments, the number of fonnulators were only two. The
NPPA clarified the position thus:
F
"The Association has claimed that the highest market share of single
fonnulator is 21.89%. This claim is based on consideration of sale values of
both single ingredient and combination products of Cloxacillin. However, the
highest market share of single drug ingredient formulation of a particular
fonnulator works out to 93.07% which is more than the stipulated level of G
40%."

Thus, there is controversy regarding the number of fonnulators and
their market share.

7.5. Cyprojlaxacin: The 2nd petitioner in writ petition No. 3449 of H
194 SUPREME COURT REPORTS [2003] SUPP. 2 S.C.R.

A 1996, namely, Ranbaxy Laboratories Ltd. produced the said bulk drug during
the relevant period and captively consumed the same in the manufacture of
formulations marketed under the brand name of Cifran both in India' and
foreign countries. The petitioner in W.P.No . 1974 of2000 is Cipla Ltd Inter
alia, it is engaged in the manufacture and sale of formulations of the drug
B Cyproflaxacin. According to Ranbaxy Ltd., the annual domestic turnover of
the drug for the year ending March, 1990 was Rs. 238 lacs and according to
the Cipla Ltd., it was Rs. 243 lacs excluding the hospital and institutional
sales to the extent of 15%. It is therefore contended that the drug stands
excluded under clause (i) of para 22.7.2 of the Drugs Policy. It is their further
contention that there was no monopoly situation as contemplated by clause
C (ii) inasmuch as there was no single formulator having 90% or more market
share in the retail trade as per ORG data. The said turnover was calculated
on the basis of estimated consumption purportedly arrived at with reference
to the data relating to sales formulations given in ORG publication. The
quantum of consumption was then multiplied by the then prevailing market
price. However, a different method of calculation of turnover was spelt out
D in the representation dated 7.3.1995 submitted by Ranbaxy Ltd., to Government
oflndia (vide Ext.Bin W.P.No. 3449of1996). According to that calculation,
the turnover is Rs.280 lacs.

In the counter-affidavit, the turnover given by the writ petitioners has
E been disputed. It is stated that ORG data relates to formulation sales and it
does not give data in regard .to quantities and values of bulk drug involved.
It was also stated that Cyproflaxacin was included in the first schedule on the
basis of criterion in clause (i) since the turnover in 1989-90 was taken as Rs.
990 lacs based on the landed cost of imports of the drug. It is then stated that
..
the data in regard to indigenous production is not available.
F
The High Court merely referred to the contention of the writ petitioners
regarding the turnover and accepted the same on the ground that there was
only bald denial in the affidavit in reply. Surprisingly, the High Court extended
the benefit of exclusion under clause (iii) also, though it was never the ·case
G of the writ petitioners. The High Court stated that there were admittedly 16
bulk drug producers and 20 formulators, though, no such case was set up by
either of the writ petitioners. In the ORG data furnished by the petitioner in
W.P.No. 3449of1996 and in the representation submitted to the Government
of India, only the names of seven formulators was mentioned. Thus, there
was an obvious error in the High Court's judgment. The plea of discrimination
H which was raised for the first time in the rejoinder affidavit filed in W.P.No.
SECY. MINISTRY OF CHEMICALS AND FERTILIZERS, GOVT. OF INDIA 1•. C!PLA LTD. [REDDI, J.J }95

3449 of 1996 also found favour with the High Court. A
7.6. Norjloxacin: The writ petitioner seeks exclusion from the purview
of DPCO on the basis of clause (iii) of para 22.7.2 of the Drugs Policy. It
is the case of the petitioner that there were at least 28 bulk drug manufacturers
and 20 formulators and no single formulator had more than 40% market
share as per the ORG figures. The names were given in the writ petition. B
However, the stand taken in the counter- affidavit filed by the Government
of India is that there were only three manufacturers of the bulk drug and the
ORG data does not disclose the number of bulk drug producers. As regards
the formulators, the stand taken is that the number of single ingredient
formulators using the said bulk drug is not discernible from the ORG data. C
It is, therefore, contended that the twin conditions of a minimum of five bulk
drug producers and at least 10 formulators are not satisfied. The High Court
accepted the plea of the writ petitioner on the ground that there was only a
bald denial in the counter-affidavit and no specific particulars were given to
controvert the contention of the petitioner. In the order passed. by NJ>PA in
·response to the representation of Bulk Drug Manufacturers' Association, it is D
stated that as per the records available, there were only three bulk drug
manufacturers in the country during 1989-90. However, the names were not
furnished either in this document or the counter affidavit.

As per the ORG data, the market share of the formulation sold by the E
petitioner-Company was 39.56% (vide annexure at page 38 of the original
writ petition record) which, as pointed out by NPPA, is technically lower
than 40%. We may add that it is perilously close to 40%. It should also 0e
noted that the writ petitioner did not furnish any details of production to
show that the bulk drug manufacturers mentioned by it or at least five ci.mongst
them actually produced the bulk drug. F
7.7. Doxycyc/ine: It is the case of the writ petitioner that it manufactures
and sells single ingredient formulation containing the bulk drug Doxycycline
in a concentration of I 00 mg per capsule under the brand name of Ooxy-1.
The annual turnover of the bulk drug Doxycycline, according to tbe writ
petitioner, was Rs. 3 16 lacs. It is seen from the tabular statement appended G
to Annexure-A to the writ petition at pages 85-86 of the original record, the
petitioner arrived at the total domestic consumption of the bulk drug with
reference to the ORG data pertaining to sales of formulations in the market.
It is the further case of the writ petitioner that as per ORG data, there were
at least 19 formulators producing Doxycycline based formulations and none H
196 SUPREME COURT REPORTS [2003) SUPP. 2 S.C.R.

A of them had more than 40% of market share in retail trade. Therefore, the
petitioner claimed that the bulk drug Doxycycline should have been excluded
from the purview of price control in terms of under clause (i) & (iii) and that
monopoly situation contemplated by clause (ii) has no application because no
single manufacturer had 90% or more market share in retail trade.

B The stand of the Government has been that the turnover of Doxycycline
was above 400 lacs during the relevant period and therefore it comes under
price control. Further, it is their case t~at clause (ii) has no application because
the turnover is above 400 lacs. It is also averred in the counter affidavit that
the retail trade sale data is not relevant since the need to calculate market
C share does not arise. Moreover, since undisputably, there is only one
manufacturer of the bulk drug, i.e., Ranbaxy Limited, the exclusion criteria
laid down in clause (iii) of para 22.7.2 is not applicable.

In paragraph 89 of the judgment under appeal, the High Court having
merely referred to the arguments of the learned counsel for the petitioner,
D accepted the case of the petitioner on the ground that in the affidavit-in-reply
filed by the Government, there was only bald der.ial ·and that the particulars
were not controverted. Moreover, the High Court was under. an apparent
misapprehension that the Writ Petitioner sought the benefit of exclusion under
clause (iii) also. The core controversy, as already noticed, is regarding the
E quantum of turnover. The Union of India took the stand that the turnover was
above 400 lacs. In the statement filed by the learned Solicitor-General at the
time of argument, the figure was given as 471.77 lacs. However, the appellant
did not furnish any details as to the calculation of turnover.

7.8. Glipizide: The writ petitioner-USV Limited is a manufacturer of
F the bulk drug 'Glipizide' which is sold under the brand name of Glynase. It
does not appear that there was any other producer of bulk drug during the
relevant period. It is the case of the writ petitioner that the annual turnover
for the year ending 31st March, 1990 was only Rs. 82 lacs and that clause
(ii) is not therefore attracted. The writ petitioner estimated the turnover figure
by arriving at the consumption of the bulk drug in various fonnulations and
G by multiplying the same by the MRP (Maximum Retail Price). The ORG data
relating to sales of formulations was furnished.

The stand of the Central Government is that production data was not
available for the year 1989-90 and the turnover of the bulk drug was
H determined by the expert group on the basis of the landed cost of imports
SECY. MINISTRY OF CHEMICALS AND FERTILIZERS, GOVT. OF INDIA 1•. CIPLA LTD. [REDD!, J.) 197

during the year to the tune of Rs.322.50 lacs. As there was only one formulator A
as reported in ORG survey of March, 1990, monopoly situation was considered
to be existing "since one formulator was having 100% market share a$ on
31.3.1990". Disputing the assertion of the writ petitioner that as per ORG
data furnished in Ext.F to the writ petition, there was no single formulator
having 90% or more market share in retail trade, it is pointed out in Paragraph B
(iv) of the counter-affidavit that Ext.F includes formulations based on the
bulk drugs other than Glipizide. It is further stated in the same para o~ the
counter that there is only one formulation, namely, Glynase based on Glipizide
and in respect of that, the writ petitioner had l 00% market share.

Thus, the dispute mainly centers round the quantum of turnover.. C
The High Court observed that "even assuming that the petitioners were
the sole manufacturers of the said drug, as the turnover was below Rs. I 00
lacs, the monopoly situation, as envisaged in para 22.7 .2 (ii) of Drug Policy,
1994 does not apply and as such the said drug ought to be kept out of the
purview of DPCO, 1995". The plea of discrimination between this dmg and D
another anti- diabetic drug known as Insulin also found favour with the High
Court.

8.1. We are of the view that the approach of High Court in considering
the question of applicability of criteria laid down in the Drugs Policy in
relation to each of the above drugs is not correct and the High Court failed E
to address itself to various crucial aspects as indicated below:

8.2. ORG data does not give full and clear picture of the turnover of
bulk drug. ORG data relates to sales of formulations made either exclusively
out of the bulk drug or in combination with other drugs. The formulations F
containing the particular bulk drug either wholly or in part reach the consumers
through normal trade channels. The particulars of sales of such formulations
entering the retail market are compiled by ORG. Bulk drug sales as such are
not covered by ORG data. At best, from ORG data, it may be possible to
deduce the consumption of bulk drug on estimated basis especially if it is the
only drug used in that formulation. Moreover, direct sales to institutions such G
as hospitals and Government organizations are not reflected in ORG
compilation. According to the certificate filed in some of the cases, such
sales would be about 14%. It is also borne out by the same certificate Issued
by the Associate Research Director of ORG (Ext. 'C' to W.P.No. 1974 of
2000 and Annexure-1 to written submissions) that out of this 86%, the ORG H
198 SUPREME COURT REPORTS (2003] SUPP. 2 S.C.R.

A data covers about 90% of the retail market sales. This is what the certificate
says:-

"The Retail Pharma Market in India contributes to 86% of the total
market and the remaining 14% towards Hospital and Institutional
sales.
B
I would like to confirm that out of this 86% of Retail Phanna Market,
ORG-MARG covers around 90% through the Retail Store Audit
(RSA)."

8.3. One more aspect which deserves notice is that from the ORG
C data, it may not be possible to ascertain whether the formulation is made up
of single ingredient of the bulk drug or it has multi- ingredients. We have
~eld that the Government of India's view that single ingredient fonnulators
alone should be taken into account for the purpose of the criteria in clause
(iii) of para 22.7.2 of Drugs Policy cannot be said to be against the policy
D or otherwise unreasonable.

8.4. Sales of bulk drugs effected during the year by bulk drug producers
including some of the respondents herein would have furnished the best
indicia of domestic sale turnover of bulk drug. But, those details were not
disclosed. Secondly, if the bulk drug produced was consumed by any bulk
E drug producer or importer and the drug was sold in the fonn of fonnulations,
the statistics regarding the quantum of bulk drug utilized in such fonnulations
and the value thereof must have been within the knowledge or reach of writ
petitioners and there is no good reason why they should withhold all this
relevant information and harp on ORG data. There is no need to resort to
F guess-work when the actual figures are available at the doorsteps of the
respondents. Moreover, some of the respondents have arrived at the estimates
by varying methods without reference to actual data available with them. For
instance, in the case of the drug Cyproflaxacin, we have adverted to different
methods of calculation given by the writ petitioners which yield different
results. If we go by the estimates of turnover made by the respondents, there
G is vast difference between the value of the bulk drug worked out by them and
the sale value of formulations. Moreover, in relation to some of the drugs,
there. is vast variation between the quantity produced and imported and the
quantity said to have been utilized in formulations sold in the market. These
factors should have put the High Court on guard to subject the petitioners'
version to close and critical scrutiny.
H
SECY. MINISTRY OF CHEMICALS AND FERTILIZERS, GOVT. OF INDIA 1•. CIPLA LTD. [REDDl.J.) 199

8.5. When the burden was on the writ petitioners to substantiate their A
plea of violation of Article 14 and when the plea predominantly rested on
facts and figures, the High Court should have examined the intrinsic worth
and credibility of the version put forward with regard to the turnover figures.
The High Court oversimplified the whole issue by addressing itself to the
only question whether there was effective rebuttal of the averments by the B

. Union of India. The callousness on the part of the offic;·lls ;oncemed in not
meeting the points raised squarely and leaving the scope for ambiguity should
not, in our view, be a ground to accept whatever is falling from the writ
petitioners. The material placed before the Court should have been critically
examined before reaching a conclusion that Article 14 is violated. The High
Court should have also examined whether the writ petitioners withheld the C
relevant data which they were in a position to produce and if so, what would
be its effect. None of these aspects received attention of the High Court.
Before striking down the legislation, the High Court should have realized that
those who challenged the legislation should lay firm factual foundation in
support of their plea. The complaint of violation of norms set out in the D
policy leading to the alleged infraction of Article 14 depends, in the ultimate
analysis, on facts and figures. As already observed, ORG data is neither
comprehensive nor conclusive and moreover in regard to some of the drugs,
the data does not in unequivocal terms, support the case of the writ petitioners.
-f
In such a situation, further probe and analysis was required which the High
Court failed to do. The version of writ petitioners regarding the quantum of E
turnover was accepted to be correct on its face value. That apart, in the light
of the clarification given by us that single ingredient formulators alone could
be legitimately taken into account in the context of clause (iii), the need for
reconsideration by the High Court becomes inevitable. We are, therefore, of
the view that the crucial issues regarding the applicability of <:riteria laid F
down in para 22. 7 .2 of the Drugs Policy require reconsideration by the High
Court from various angles indicated supra in the light of the legal position
enunciated and the observations made in this judgment.

8.6. We have broadly indicated the aspects on which the High Court
could have focused its attention before reaching the conclusion it did. Nothing G
precludes the High Court from having regard to other aspects or material
which it considers relevant to test the correctness of the writ petitioners'
claims. However, we would like to clarify one thing. If, on reconsideration,
the turnover of any drug is found to be very close to the figure-400 or 100
lacs, as the case may be, the relevant criterion must be deemed to have been H
200 SUPREME COURT REPORTS [2003] SUPP. 2 S.C.R.

A satisfied. As we said earlier, mathematical accuracy is not what is required.
8.7. There is one more point which we have to deal with, i.e., the
alleged discrimination between one drug and another. The High Court upheld
such plea raised in rejoinder affidavit in relation to the drugs 'Cyprotlaxacin' ·"\

and 'Glipizide'. We unhesitatingly vacate the findings of the High Court in
B this regard because we are of the view that the reasons given by the High
Court for upholding such plea are too tenuous to merit even prima facie
acceptance.

8.8. In the case of Cyproflaxacin in W.P.No. 3449 of 1996 it was
C contended that two bulk drugs, namely, Mefenamic Acid and Amikacin
Sulphate were wrongly and arbitrarily deleted from the DPCO, 1995. It is
difficult to comprehend as to how there could be infraction of Article 14
merely because a few bulk drugs were excluded from the purview of DPCO
on a reconsideration. The exclusion of some drugs, even if such exclusion is
unjustified,. cannot be a ground to claim exclusion of other drugs on the so
D called principle of parity. Logically, if the High Court's view has to be .
accepted, the entire Schedule should be invalidated for the simple reason that
one or two drugs, which were not eligible for exclusion in the light of the
policy guidelines were excluded. It would then lead to a startling result
frustrating the very objective of regulating the price of essential drugs. That
E apart, the turnover figures of the said two drugs furnished by the writ petitioner
and referred to by the High Court, do not establish that they fall within the
policy guidelines. Regarding Mefenamic Acid, what all is stated in paragraph
16 of the rejoinder affidavit is that the turnover of this drug has been "over
Rs.4 crores between 1988-89 to 1991-92 and yet it was excluded for reasons
not known to the petitioners". Nothing has been stated as to how the turnover
F for the relevant year was arrived at. No infonnation was furnished regarding
the number of bulk drug producers and fonnulators and their market share.
Evidently, the petitioner made only a halfhearted attempt to put forward a
plea of discrimination, but, it succeeded in its attempt. Coming to the other
drug Amikacin Sulphate, even according to the petitioner, the import value
G of the drug in 1989-90 was Rs.3 .5 crores, which is much below the limit of
Rs.4 crores and even if there was a single fonnulator having a market share
in excess of 40%, that does not make any difference. That apart, the
Government of India· clarified in one of the counter affidavits filed in the
High Court that on the scrutiny and verification of details submitted by the
manufacturers, these two drugs were subsequently deleted from the First
H
SECY. MINISTRY OF CHEMICALS AND FERTILIZERS, GOVT. OF INDIA 1•. CIPLA LTD. [REDD!, J.J 20}

Schedule having regard to the criteria laid down in the policy. A
We have, therefore, no hesitation in reversing the conclusion of the
High Court that the P.xclusion of the said two drugs from DPCO amounted
t. to hostile discrimination.

8.9. Regarding 'Glipizide', the plea of discrimination between this· drug B
and another anti-diabetic drug known as Insulin, found favour with the High .
Court. The High Court, in paragraph 90 of the judgment referred to the
argument that Insulin having 441 lacs turnover as on 31st March, 1990 was
included in DPCO of 1995, but subsequently excluded from price control and
held that there was discrimination on that account. The High Court evidently C
proceeded on an erroneous assumption that Insulin was excluded from the
schedule. The averrnents in paragraph 22 of the writ petition No.521911996
are otherwise. The plea of discrimination was aimed at the drug known as
Glibelclamide, which was excluded from the DPCO of 1987 and continued
to remain excluded from the DPCO of 1995. The respondent did not even
aver that the said drug had the turnover of more than 100 lacs and therefore D
it would fall within the mischief of clause (ii). On the basis of a bald plea,
the infraction of Article 14 ought not to have been countenanced. The finding
of the High Court in this regard is palpably wrong.

9. We now summarize the conclusions as under:
E
1. Where the Central Government as the delegate of legislative
power announces a rational policy in keeping with the purposes
of enabling legislation and even lays down specific criteria to
promote the policy, the criteria so evolved become the guide-
posts of its legislative action. While classifying the drugs for the F
purpose of price control, it is not open to the Government to
flout or debilitate the set norms which it professed to follow in
the interest of transparency and objectivity. Otherwise, there will
be an element of arbitrariness and the delegated legislation will
not withstand the test of Article 14.
G
2. The expression 'turnover' in Drug Policy, 1994 represents the
sale value of bulk drug sold as such or in the form of formulations.

3. Export sales should not be taken into account while computing
turnover.
H
202 SUPREME COURT REPORTS [2003] SUPP. 2 S.C.R.

A 4. The sum total of production and imports of bulk drug cannot be
equated to turnover, though they are not altogether irreleva~t in
calculating the turnover.

5. ORG data does not give exhaustive account of tum over of bulk
drug. It may furnish the basis for estimating the turnover, but is
B not the sole guide.

6. For the purpose of criterion No.(iii) of the Drug Policy, the
single ingredient formulators alone ought to be taken into account
as clarified by the Govt. of India.

c 7. Burden lies on those who challenge the legislation on the ground
of violation of Article 14 to make out their case by furnishing all
the relevant material which is within their reach and knowledge.
There should be frank disclosure of material facts, more so, when
the plea is founded on certain factual aspects. The mere vagueness
or lack of clarity in the stand taken by the Union of India does
D not by itself advance the case of the writ petitioners.

8. The plea of writ petitioners ought to have been tested and
subjected to scrutiny in the light of all relevant factors instead of
merely considering whether the particulars furnished by the
petitioners were effectively controverted or not. Such an approach
E
of the High Court is wholly impermissible while deciding. the
validity of legislation-plenary or delegated, from the stand point
of Article 14.

9. The plea of discrimination between one drug and another is
F unfounded and should not have been accepted by the High Court.

10. In the result, the judgment of the High Court is set aside and the
writ petitions out of which these appeals arise shall stand restored
. to the file of the High Court and the High Court will have to
consider afresh the relevant aspects concerning the criteria laid
G down in para 22.7.2 of the Drug Policy, 1994 in relation to each
drug, having due regard to the observations made in the judgment.
The High Court may endeavour to expedite hearing of t~e writ
petitions.

11. The appeals are accordingly allowed without costs. We also
H consider it just and proper to give liberty to the appellant and the
SECY. MINISTRY OF CHEMICALS AND FERTILIZERS, GOVT. OF INDIA''· CIPLA LTD. [REDD!, J.) 203

concerned statutory authorities to recover 50% of the 'over A
charged' amounts pending fresh determination by the High Court.
Accordingly, we direct stay of recovery of 50% of the
'overcharged' amount subject to the payment of remaining 50%
within the period of four weeks from the date of communication
of the amount payable by each of the writ petitioners.
B

N.J. Appeal allowed