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He was required to report this price to the Central Government within two weeks of the commencement of the order and was further prohibited from increasing the price without obtaining the approval of the Central Government Ratio |
A Committee on Drugs and Pharmaceutical Industry, popularly known as the Hathi Committee was appointed by the Government of India to enquire into the various facets, of the Drug Industry in India Ratio |
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 Ratio |
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 important to emphasise 'the social utility of the industry and the urgent need for extending as rapidly as possible certain minimum facilit... |
It was said, "The concern about drug prices, therefore, really arises from the fact that many of them are essential to the health and welfare of the community; and that there is no justification for the drug industry charging prices and having a production pattern which is based not upon the needs of the community but ... |
The Government of India accepted the report of the Hathi Committee and announced in Parliament the 'Statement on Drug Policy' pursuant to which the Drugs (prices Control) Order, 1970 was repealed and the Drugs (prices Control Ratio |
Order, 1979 was made Ratio |
Paragraph 44 of the Statement on Drug Policy in 1978 dealt with 'pricing policy' and it may be usefully extracted here Ratio |
It was as follows Ratio |
The Hathi Committee 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 fixation, depending on the importance and complexity of the bulk drug Ratio |
In the case of formulations, the Hathi Committee 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 contemplated Ratio |
The Hathi Committee considered that units (other than MRTP units) having only turnover of less than Rs.1 crore may be exempted from price control Ratio |
Alternatively, 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 annual turnover of the unit is in excess of Rs.1 crore Ratio |
The ceiling price will be determined taking into account the production costs and a reasonable return for the units which are the market leaders Ratio |
Yet another variant of a selectivity, according to the Hathi Committee, would be to identify product groups which individually are important and which collectively constitute the bulk of the output of the industry Ratio |
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 Ratio |
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 within this ceiling Ratio |
On balance, the Hathi Committee was of the view that this particular variant selectivity may be administratively simpler Ratio |
The Drugs (prices Control) Order, 1979 was made pursuant to this Statement of Policy STA |
Paragraph 2(a) of the Drugs STA |
prices Control STA |
Order, 1979 defines 'bulk drug' to mean "any substance including pharmaceutical, chemical, biological or plant product or medicinal gas conforming to pharmacological or other standards accepted under the Drugs and Cosmetics Act, 1940, which is used as such or as in ingredient in any formulations STA |
Formulation" is defined as follows:- "Formulation means a medicine processed out of, or containing 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 prevention of disease in human beings or animals, but sha... |
The expressions "free reserve", "leader price", "net-worth", "now bulk drug", "pooled price," "pre-tax return", "retention price" are defined in the following manner: ""Free reserve" means a reserve created by appropriation of profits, but does not include reserves provided for contingent liability, disputed claims, go... |
10 and 11, keeping in view the cost of or efficiency, or both, of major manufacturers of such formulations STA |
net-worth' means the share capital of a company plus free reserve, if any STA |
new bulk drug' means a bulk drug manufactured within the country, for the first time after the commencement of this Order STA |
Pooled price' in relation to a bulk drug, means the price fixed under para 7 STA |
pre-tax return' means profits before payment of incometax and sur-tax and includes such other expenses as do not form part of the cost of formulations STA |
retention price' in relation to a bulk drug means the price fixed under paras 4 and 7 for individual manufacturers, or importers, or distributors, or such bulk drugs STA |
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 Ratio |
Order was abandoned in the 1979 Order Ratio |
Bulk drugs were, however, broadly divided into indigenously manufactured bulk drugs, imported bulk drugs and hulk drugs which were both manufactured indigenously as also imported Ratio |
Paragraph 3 of the 1979 Order enables the Government, with a view to regulating the equitable distribution of any indigenously manufactured bulk drug specified in the first or the second schedule and making it available at a fair price and after making such enquiry as it deems fit, to fix from time to time by notificat... |
Cl STA |
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 manufacturer and allow a reasonable return on net worth STA |
By way of an explanation efficient manufacturer is defined to mean "a manufacturer-(i STA |
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 STA |
We 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 STA |
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 any payable: provided that until the price of bulk drug is so notified, the price of such bulk drug shall be the price which prevailed immediately before the commen... |
This means that until the maximum sale price of an indigenously 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 permitted under paragraph 5 of the 1970 order was to be maximum sale price Ratio |
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 Ratio |
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 commencement of the the production of such bulk drug, make an application to the Government in Form I and intimate the Government the price at which he intends to sell th... |
Paragraph 4 of the 1979 order provides that notwithstanding anything 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 ... |
a STA |
Paragraph 4 is thus in the nature of an exception to paragraph 3 Ratio |
It is meant to provide a fillip to individual manufacturers of bulk drugs whose production it is necessary to increase Ratio |
Retention price, by its very definition pertains to individual manufacturers Ratio |
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 Ratio |
Paragraph 5 deals with the power of the Government to fix maximum sale price of new bulk drugs STA |
Paragraph 6 enables the Government to fix the maximum sale price of imported bulk.drugs specified in First and Second Schedules STA |
Paragraph 7 deals with the power of the Government to fix retention price and pooled price for the sale of bulk drugs specified in the First and Second Schedules which are both indigenously manufactured and imported STA |
Paragraph 9 empowers the Government to direct manufacturers of bulk drugs to sell bulk drugs to manufacturers of formulations STA |
Paragraph 10 prescribes a formula for calculating the retail price of formulations STA |
The formula is: "R.P. = (M.C.+C.C.+P.M.+P.C.) x (1+MU)+ E.D. 100 "R.P." means retail price STA |
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 norms as may be specified by the Government from time to time by notification in the official Gazette in this behalf STA |
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 STA |
P.M." means the cost of packing material including process loss thereon worked out in accordance with such norms as may be specified by the Government from time to time by notifi- cation in the official Gazette in this behalf STA |
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 STA |
M.U." means make-up referred to in para STA |
E.D." means excise duty STA |
Paragraph 11 explains what 'Mark-up' means STA |
Paragraph 12 empowers the Government to fix leader prices of formulations of categories STA |
I and II specified in the third schedule STA |
Paragraph 13 empowers the Government to fix retail price of formulations specified in category III of third schedule STA |
Paragraph 14 contains some general provisions regardingprices of formulations STA |
Paragraph 15 empowers the Government to revise prices of formulations STA |
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 suc... |
Paragraph 17 requires the Government to maintain 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 the case may be, pooled price over his retention price STA |
It is provided that the amount credited to the Drugs Prices Equalization Account shall be spent for paying to the manufacturer, "the shortfall between his retention price and the common selling price or as the case may be, the pooled price STA |
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 days of the date of the publication of the notification in the official Gazette, or, as the case may be, the ... |
Bulk drugs constituting categories STA |
I and II are enumerated in the First Schedule STA |
Bulk drugs constituting category III are enumerated in the Second Schedule STA |
Formulations constituting categories I, II and III are enumerated in the Third Schedule STA |
The Fourth Schedule prescribes the various forms referred to in the different paragraphs of the Drugs (prices Control) Order STA |
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 prices of bulk drug STA |
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 STA |
The 'proforma' requires particulars of costdata, 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 price or notional or declared prices... |
to be furnished STA |
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 commission, expenses not recognised by income tax authorities and adjustments relatin... |
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 ARG |
Order was a legislative activity and, therefore, not subject to any principle of natural justice ARG |
He urged that relevant information was required to be 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 ARG |
This information obtained from the various manufacturers 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 structures and pricing problems and to advise the Government ARG |
It was only thereafter that notifications fixing the prices were issued ARG |
He further 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 ARG |
The review contemplated by paragraph 27 in so far as it related to the notification under paragraph 3, it was submitted by the learned Additional Solicitor General, did not partake the character of a judicial or quasi-judicial proceeding ARG |
He urged 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 petitions arise ARG |
He urged that the Government had always been ready and wilting to give a proper hearing to the parties and in fact gave them a heating in connection with their review applications ARG |
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 discussion between the parties a... |
The submission of Shri Anil Diwan, learned counsel for the respondents was that unlike other price control legislations, the Drugs (prices Control) Order ,was designed to induce better production by providing for a fair return to the manufacturer ARG |
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 may be determined by taking into account production costs and a reasonable return ARG |
Great emphasis was laid on the second clause of 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 ARG |
It was submitted that the provision for an enquiry preceding the determination of the price of a bulk drug, the prescription in paragraph 3 cl ARG |
2 that the average cost of production of the drug manufactured by an efficient 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 determining the price, established that price-fixation under the Drugs (prices Control ARG |
Order 2979 was a quasijudicial activity obliging the observance of the rules of natural justice ARG |
The suggestion of the learned counsel was that the nature of the review under paragraph 27 was so apparently quasi-judicial and that the need to 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 quasijudicial remedy of review, that by ... |
The provision for enquiry in the first clause of paragraph 3 and the prescription of the matters to be taken into account in the second clause of paragraph 3 further strengthened the implication, according to the learned counsel ARG |
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 quasijudicial character and, therefore, it was necessary that the manufacturers should be informed of the basis for the fixation of t... |
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