1991 (1) TMI 465 - SC - Indian Laws

Supreme Court Clarifies Drug Pricing Order, Upholds Acquittal Due to Time Lapse and Other Factors.

The SC rejected the HC's interpretation of the Drugs (Prices Control) Order, 1979, which had acquitted the respondents of selling medicines above the ... Construction of 'formulation' under clause (f) of para 2 of the Drugs (Prices Control) Order, 1979 - application of paragraph 21 read with paragraph 18 of the Drugs (Prices Control) Order, 1979 - punishability of sale above maximum retail price under Section 7 of the Essential Commodities Act, 1955Construction of 'formulation' under clause (f) of para 2 of the Drugs (Prices Control) Order, 1979 - classification of bulk drugs as formulations - Largactil and Hipnotex fall within the definition of 'formulation' in clause (f) of para 2 of the Drugs (Prices Control) Order, 1979. - HELD THAT: - The definition of 'bulk drug' in clause (a) includes any substance 'which is used as such, or as an ingredient in any formulations.' 'Drug' in clause (d) includes 'bulk drugs and formulations,' and clause (f) defines 'formulation' as a medicine processed out of, or containing, one or more bulk drugs or drug. A formulation therefore may comprise even a single bulk drug when that substance is treated as a medicine. On this construction, the two medicines in question (Largactil and Hipnotex) cannot be excluded from the definition of 'formulation.' The High Court's contrary view stems from a misreading of these definitional provisions. [Paras 8, 11]The Court holds that Largactil and Hipnotex are 'formulations' as defined in clause (f) of para 2 of the 1979 Order.Application of paragraph 21 read with paragraph 18 of the Drugs (Prices Control) Order, 1979 - scope of para 18 making other provisions of the Order applicable to formulations not in the Third Schedule - punishability under Section 7 of the Essential Commodities Act, 1955 - Paragraph 18 makes the provisions of the Order (except paras 10-14) applicable to formulations not specified in the Third Schedule, and therefore para 21 applies to such formulations; sale above the fixed retail price would amount to contravention punishable under Section 7 of the Act, if proved. - HELD THAT: - Paragraph 18 expressly provides that the provisions of the Order other than paragraphs 10 to 14 shall apply to any formulation not specified in Category I, II or III of the Third Schedule. Thus the control on sale prices in para 21 is made applicable to formulations outside the Third Schedule by virtue of para 18. A contrary construction would render price fixation for formulations outside the Third Schedule ineffective. The Court notes that a 1987 amendment further clarified this position, but even under the 1979 Order para 18 operates to bring para 21 into effect for such formulations. Consequently, allegations that, if established, show sale above the maximum retail price would constitute a contravention punishable under Section 7. [Paras 10, 13]The Court holds that para 21 applies to formulations not listed in the Third Schedule by virtue of para 18, and that sale above the fixed retail price falls within the punishable contravention under Section 7 of the Essential Commodities Act, 1955, if proved.Final Conclusion: The Court rejects the High Court's construction of the 1979 Order, holding that the two medicines are 'formulations' and that para 21, read with para 18, makes sale above the fixed retail price a contravention punishable under Section 7; nonetheless, in view of unadjudicated defences and the peculiar facts and delay in the case, the Court does not disturb the acquittal of the respondents. Issues Involved:1. Alleged contravention of para 21 read with para 18 of the Drugs (Prices Control) Order, 1979.2. Correctness of the High Court's construction of the provisions of the Drugs (Prices Control) Order, 1979.3. Applicability of para 21 to formulations not specified in the Third Schedule.4. Definition and classification of 'bulk drug' and 'formulation'.5. Appropriate course of action considering the lapse of time and other defenses.Issue-wise Detailed Analysis:1. Alleged Contravention of Para 21 Read with Para 18 of the Drugs (Prices Control) Order, 1979:The respondents were found guilty by the trial court for selling medicines at prices exceeding the maximum retail price fixed under the Drugs (Prices Control) Order, 1979, which is punishable under Section 7 of the Essential Commodities Act, 1955. The trial court convicted the respondents, sentencing the firm to a fine and the managing partner and pharmacist to imprisonment. However, the High Court acquitted the respondents, concluding that the alleged contravention was not established under the said provisions.2. Correctness of the High Court's Construction of the Provisions of the Drugs (Prices Control) Order, 1979:The High Court held that the medicines in question, Largactil and Hipnotex, were bulk drugs and not formulations, and thus, the prohibition in para 21 did not apply. The Supreme Court found this interpretation incorrect, emphasizing the need to correctly construe the provisions of the Order for future guidance. The Supreme Court held that the High Court's construction was a mis-reading of the material provisions of the Order.3. Applicability of Para 21 to Formulations Not Specified in the Third Schedule:The Supreme Court clarified that para 18 of the Order makes the provisions applicable to formulations not specified in the Third Schedule, except for paragraphs 10 to 14. Therefore, para 21, which controls the sale prices of formulations, applies to all formulations, including those not specified in the Third Schedule. The contrary view would render the price fixation exercise futile.4. Definition and Classification of 'Bulk Drug' and 'Formulation':The Supreme Court analyzed the definitions provided in para 2 of the Order. A 'bulk drug' is any substance used as such or as an ingredient in any formulation. A 'formulation' is defined as any medicine processed out of or containing one or more bulk drugs. Thus, the definitions are broad, and the medicines in question, Largactil and Hipnotex, fall within the definition of 'formulation'. The High Court's view that these medicines were merely bulk drugs and not formulations was incorrect.5. Appropriate Course of Action Considering the Lapse of Time and Other Defenses:The Supreme Court acknowledged the lapse of several years since the alleged offense and the fact that the High Court did not consider other defenses raised by the respondents. It was deemed inappropriate to send the case back to the High Court for further consideration, as it would prolong the trial. The Supreme Court decided not to interfere with the acquittal but clarified the correct interpretation of the provisions for future cases.Conclusion:The Supreme Court rejected the High Court's construction of the provisions of the Drugs (Prices Control) Order, 1979, holding that the allegations, if proved, would amount to a contravention of para 21 read with para 18, punishable under Section 7 of the Essential Commodities Act, 1955. However, due to the lapse of time and other considerations, the Supreme Court did not interfere with the acquittal of the respondents. The appeal was disposed of accordingly.