B. N. KIRPAL ( 1 ) THE challenge in this and the connectedwrit petitions is to the fixation of maximum sale price of thebulk drugs and of the retail prices of formulation, which priceshave been fixed from time to time, under the provisions ofthe Drugs Prices (Display and Control.) Order, 1979 (hereinafterreferred to as DPCO of 1979" ). ( 2 ) THOUGH a number of writ petitions were heard together,the main arguments were addressed by the counsel in Civil Writno. 820 of 1981 (Cyanamid India Limited Vs. Sh. R. N. Das),hereinafter referred to as the petitioners . The contentions raisedare common to all the other writ petitions except that in somecases additional points have been taken which will be dealt withseparately. It is, therefore, necessary to set-out the relevant factsin Cyanamid s case in some detail. ( 3 ) BEFORE 1962 there was no statutory control on the pricesof drugs. For the first time control was brought about whendrugs (Control of Prices) Order, 1963 was promulgated, underthe Defence of India. Act, whereby orders were issued freezingthe prices of drug s as from 1/04/1962. Thereafter Tariffcommission was appointed to go into the cost structure of 17bulk drugs, 34 single drug formulations and 15 multiple drugformulations. The Tariff Commission submitted its report in1968, inter alia, recommending 15 per cent pre-tax return oncapital employed for bulk drugs. For formulations it recommended ex-factory cost plus 15 per cent selling expenses plus 15 percent mark up of total cost of sales. ( 4 ) ON 16/05/1970, in exercise of the powers conferredby section 3 of the Essential Commodies Act, 1955, thecentral Government issued the Drugs (Prices Control) Order,1970. Under this Order, prices of essential bulk drugs werefixed by the Government under clause 4 (1), which was asfollows: "4. Power to fix the maximum sale price of an essentialbulk drug. (1) The Central Government may, with a view to regulating equitable distribution of essential bulk drug andmaking the same available at a fair price, from timeto time fix, by notification in the Official Gazette, themaximum price at which the said essential bulk drugshall be sold: Provided that before fixing the maximum price in respect of an essential hulk drug, itshall be the duty of the Central Government loinstitute such inquiry as it deems fit for the purpose. Provided further that, as regards the fixation of themaximum price of the essential bulk drugs includedin Schedule I at the commencement of this Order,the recommendations made in this behalf by thetariff Commission in its Report of August, 1968shall form the basis and no such inquiry as aforesaid shall be necessary. The said Order of 1970, inter alia, also provided for a formula for calculating the retail prices of formulations. The saidorder also envisaged that instead of fixing the retail prices ofthe formulations in terms of the said formula the Central Government could approve a scheme of prices covering all or theformulations marketed by the manufacturers so that the overallgross profit before tax does not exceed 15 per cent of the salesturn over. This was provided by clause 14 of the: said Order. Under the said Order prices of the bulk drugs were fixed underclause 4 whereas prices of formulations were fixed either according to the formula or according to clause 14, which provided forthe aforesaid alternative scheme of prices. As regards the petitioners, they opted for the scheme of package of prices underclause 14 of the D. P. C. O. of 1970, which scheme was approvedby the Central Government. ( 5 ) THE question of fixation of prices of drugs appears to havebeen receiving the attention of the Government from time totime. In 1974 it appointed a Committee under the Chairmanship of Shri Jaisukhlal Hathi, commonly known as the Hathicommittee, to enquire into the various aspects of the drugindustry, It submitted its report in April, 1975 known as thehathi Committee Report. The said report Was considered by thecentral Government and, on 29/03/1978, Shri H. N. Bahuguna, the then Minister of Petroleum, Chemicals andfertilizers, announced the new drug policy of the Government,which contained the Government s decision on the recommedations of the Hathi Committee. The broad objectives ofthe said policy were, inter alia, to develop self-reliance indrug technology; to provide for leadership role to public sector;to try and reduce the quantum of imports and to foster and encourage the growth of Indian Sector; to ensure that the drugs areavailable in abundance at reasonable prices; to keep a carefulwatch on the quality of production and to prevent adulterationand mal-practices; to offer special incentives to firms which wereengaged in research and development; and to provide otherparameters to control, regulate and rejuvenate the industry. asa whole keeping in view the national objectives and priorities. asa whole keeping in view the national objectives and priorities. The said policy also contained the decision of the Central Government that all bulk drugs which were used in production of pricecontrol formulations would be subject to price control. It wasfurther provided that the post tax return on bulk drugs repuiredfor production of category I and II formulations, which werehighly essential and life saving will be kept on 14 per cent aridon the other bulk drugs at 12 per cent on net worth -i. e. equityplus free reserves. ( 6 ) ON 31/03/1979 the DPCO of 1979 was issuedunder Section 3 of the Essential Commodities Act, 1955, thiswas in supersession of DPCO of 1970. Before dealing with therelevant provisions of the said DPCO in some detail, at thisstage it may only be noted that the said DPCO provided forfixation of maximum price for sale of the bulk drugs, the retailprices of formulations and it also provided for leader prices tobe fixed. The bulk drug prices which were prevailing prior tothe promulgation of the said Order were statutorily continuedtill they were refixed under this DPCO. ; ( 7 ) BY an order dated 3/04/1979 issued under clause12 (1) of DPCO of 1979, the Central Government fixed leaderprices of several formulations. These prices were the same asthe prices which were prevalent under the DPCO of 1970. ( 8 ) ON 14/09/1979 the petitioners wrote to thegovernment asking for upward revision of one of the basicbulk drugs manufactured by it, namely, Tetracycline Hcl. Thepetitioners then received from the Bureau of Industrial Costsand Prices (hercinafter referred to as "bicp") a letter askingthat cost data of the notified bulk drugs should be submittedto it by the petitioners. In respect of Tetracyclinc the petitionersfunrished the necessary cost data on 12/10/1979. Thebicp then, on 30/09/1980, required that cost dataunder DPCO of 1979 for significant purchases made upto August,1980 for major inputs for manufacture of bulk drugs should besupplied to it. The said requisite information was supplied bythe petitioners on 14/10/1980 for three bulk drugs,namely. Tetracycline Hcl, Chloro-Tetracycline and De-Methyl-Chloro-Tetracyline. Vide its letter dated 8/01/1981 thebicp asked for data for energy cost escalations to be submittedto it before 31/01/1981. The same was submitted by thepetitioners on 29/01/1981. The said requisite information was supplied bythe petitioners on 14/10/1980 for three bulk drugs,namely. Tetracycline Hcl, Chloro-Tetracycline and De-Methyl-Chloro-Tetracyline. Vide its letter dated 8/01/1981 thebicp asked for data for energy cost escalations to be submittedto it before 31/01/1981. The same was submitted by thepetitioners on 29/01/1981. ( 9 ) WHILD the aforesaid data was being collected by BICP,the Central Government, on 28/01/1981, passed Bulkdrug Order under clause 3 of DPCO of 1979 fixing the pricesof six of the bulk drugs which were manufactured hy thepetitioners. The prices so fixed were less than the prices whichthe petitioners had wanted the Government to fix. Aggrievedby the aforesaid fixation of prices, on 2/03/1981 thepetitioners filed an application for review before the respondentsrequesting that the prices which had been fixed by the aforesaidorder dated 28/01/1981 should be revised. The petitioners also asked the respondents to disclose the basis and thecriteria on which the prices had been fixed under the impugnedbulk Drug Order. ( 10 ) THE Government, under clause 12 (2) of the DPCO of1979, vide order dated 12/03/1981, fixed prices of 15formulatic. As the petitioners were not satisfied with the priceswhich v so fixed, they sent another letter dated 27/03/1981 in furtherance of the review application dated 23-1981requesting for upward revision of the said prices, It was alsocontended in the said letter that it was fair and reasonable thatthe petitioners should be given an opportunity of being heardand they should be told the basis and the criteria which isadopted by the Government in determining the prices. It wassubmitted that the said basis and criteria should be providedto the petitioners so that they have reasonable opportunity ofjustifying their costs. It may here be noted that a formal reviewapplication against the Order dated 12/03/1981 was filedby the petitioners on 13/04/1981. ( 11 ) ON 1/04/1981 the Government issued an orderunder clause 7 (1) of the DTCO of 1979. By virtue of this Order,retention price for Tetracycline HCI was fixed at. Rs. 729. 68 perkg. for 4 different manufacturers of the said drug and the bulkprice for the same was also fixed at the same figure ofrs. 729. 68 per Kg. Retention and pool price in respect of another bulk drug, namely Tetracycline Base, was also fixed bythe said Notification at Rs. 675- per Kg. ( 12 ) ON 3/04/1981 the Government fixed prices offour more formulations under clause 15 (b) of the DPCO of1979. 729. 68 per Kg. Retention and pool price in respect of another bulk drug, namely Tetracycline Base, was also fixed bythe said Notification at Rs. 675- per Kg. ( 12 ) ON 3/04/1981 the Government fixed prices offour more formulations under clause 15 (b) of the DPCO of1979. By another review application dated 13/04/1981 thepetitioners applied for review not only of Order dated 1 2/03/1981 but also of the aforesaid Order dated 3/04/1981. ( 13 ) ON 19/04/1981 the present writ petition was filed bythe petitioners challenging the aforesaid orders issued by thegovernment fixing the maximum sale price of six bulk drugsas well as retail prices of formulations which had been determinedby the Government. On 20/04/1981 notice was issued tothe respondents and ex parte interim order was passed to thefollowing effect: "in the meanwhile, on the petitioner s giving an undertaking to maintain prices both for bulk and formulation, as were provailing prior to the impugnednotification, we stay implementation of the impugnedbulk prices as well as formulation prices. "on 21/07/1981 rule was issued and the interim arrangement, pending disposal of the writ petition, was recorded videorder dated 25/11/1981. The relevant portion of thesame is as under: "after hearing learned counsel and with their consent,an arrangement has been worked out as an interimmeasure. We. therefore, confirm till further ordersthe interim order made by us on 20/04/1981. The terms of the said order i. e. on the undertakinggiven on behalf of the petitioners to maintain statusquo on the prices prevailing prior to the issue of theimpugned notifications, the petitioners through theircounsel further give an undertaking to this Courtthat, in case the petition is dismissed and the ruleis discharged the petitioners shall within eight weeksof the? dismissal of the petition by this Court depositin this Court the difference in the prices of theformulations in question for being ultimately deposited in the Drugs Prices Equalisation Account. The petitioners through their counsel further givean undertaking that in this Court the petitionerswould not contend or challenge the said amount,if deposited, is not liable to be deposited under anylaw whatsoever. It is made clear that the undertaking is without prejudice to the petitioner s rightto take appropriate directions from the Supremecourt, if so advised in this regard. The petitioners through their counsel further givean undertaking that in this Court the petitionerswould not contend or challenge the said amount,if deposited, is not liable to be deposited under anylaw whatsoever. It is made clear that the undertaking is without prejudice to the petitioner s rightto take appropriate directions from the Supremecourt, if so advised in this regard. " ( 14 ) DURING the pendency of the writ petition, revised bulkdrug Order was issued under clause 7 (1) of the DPCO of1979 on 8/07/1982 superseding earlier Order dated 1/04/1981. As a result of this. fresh retention prices andpool prices were fixed inrespect of two bulk drugs. By anotherorder dated 13/07/1982, issued under clause 3 (1) of thedpco of 1979, the earlier Bulk Drug Order dated 28/01/1981 was superseded and prices of four bulk drugs were revised upwards. Even the revised prices were not as much aswere being claimed by the petitioners. This was followed byanother Order dated 6/08/1982, issued by the Government under clause 12 (2) of the DPCO of 1979, in supersessionof the earlier Order dated 12/03/1981, and prices of 14formulations were revised. In respect of eight formulationsthe prices were increased, pricse of 5 formulations remained thesame and the price of one formulation was decreased. ( 15 ) THE aforesaid revised Bulk Drug Order dated 8/07/1982 was challenged by the petitioners by their filing a reviewapplication on 16/09/1982. On that day anotherreview application was also filed challenging the Order dated 1 3/07/1982. The Order dated 16/09/1982, wherebyprices of some formulations were revised, was also challengedby another review application also dated 16/09/1982. The petitioners then sought to challenge the aforcsaidorders revising the bulk drug prices and the formulation pricesby moving anapplication, C. M. No. 2363 of 1983, for permision to amend the writ petition. Before this application couldbe allowed, a meeting was held on 7/01/1983 betweenthe Secretary, Ministry of Chemicals and Fertilizers and the representatives of the petitioners as well as of the BICP. Theminutes of the meeting show that no final decision was takenon the review applications which had been filed by the petitioners. One thing, however, which was decided was that BICPwould invite the representatives of the petitioners and wouldgive them a hearing and would look into their various claims. ( 16 ) THE Government thereafter issued Orders dated 2 9/08/1983, 3/09/1983 and 29/09/1983revising the prices of various formulations. One thing, however, which was decided was that BICPwould invite the representatives of the petitioners and wouldgive them a hearing and would look into their various claims. ( 16 ) THE Government thereafter issued Orders dated 2 9/08/1983, 3/09/1983 and 29/09/1983revising the prices of various formulations. On 30/11/1983 the petitioners moved a second application foramendment of the writ petition. By order dated 5/01/1984 the amendment of the writ petition was allowed and thepetitioners were permitted to challenge the various Orderswhich had been issued after the filing of the writ petition. ( 17 ) THE challenge in the writ petition filed by M/s. Cyanamid India is to the price fixation of the following six bulk drugsand the formulations made therefrom : 1. Tetracycline HCL (Parenteral) (PTC) 2. Demethylchlortetracyline Base (Neutral), (DMCTC-Base) (Discontinued from Nov. 1981) 3. Demethylchlortetracyline HCL (DMCTC-HCI.) 4. Chlor tetracycline HCL (CTC-HCL) 5. Tetracyline Base (Neutral) (PTN), (Discontmuedfrom March, 1982 ). 6. Tetracycline HCL (TC-HCL)ITEMS 1 to 4 are solely manufactured and captivoly consumed by the petitioners. Items 5 and 6 are alsomanufactured by others. In order to appreciate the rival contentions, it is necessaryto refer to the relevant provisions of the DPCO of 1979 insome detail. ( 18 ) UNDER paragraph No. 3 of the said Order, power isgiven to fix the maximum sale price of indigenous!" manufactured bulk drugs specified in First Schedule or Second Schedule. The said paragraph reads as under : "3. Power to fix the maximum sale price of indigenouslymanufactured bulk drugs specified in Firstschedule or Second Schedule. (1) The Government may, with a view to regulatingthe equitable distribution of an indigenously manufactured bulk drug specified in the First Scheduleor the Second Schedule and making it available ata fair price and subject to the provisions containedin sub-paragraph (2) and after making such inquiry as it deems fit, fix, from time to time, by notification in the Official Gazette, tnc maximum priceat which such bulk drug shall be sold. (2) While fixing the price of a bulk drug under subparagraph (1 ). the Government may fake intoaccount the average cost of production of suchbulk drug manufactured by an efficient manufacturer and allow a reasonable return on net-worth. (2) While fixing the price of a bulk drug under subparagraph (1 ). the Government may fake intoaccount the average cost of production of suchbulk drug manufactured by an efficient manufacturer and allow a reasonable return on net-worth. Explanation.- In this sub-paragraph, the expression "efficient manufacturer" means a manufacturer : - (i) whose production of such bulk drug in relationto the total production of such bulk drug in thecountry is large, or (ii) who employes efficient technology in the production of such bulk drug. (3) No person shall sell a bulk drug at a price exceedingthe price notified under sub-paragraph (1), pluslocal taxes, if any, payable :"provided that until the price of a bulk drug is so notified, the price of such buik drug shall be. the pricewhich prevailed immediately betore the commencement of this Order and the manufactorer of suchbulk drug shall not sell such bulk drug at a price"xceeding the price which prevailed as aforesaid. (4) (a) ere (after the commencement of thisorder) any manufactorer commences productionof a bulk drug specified in the First Schedule orthe Second Schedule, the price of which has already been notified by the Goverament, ho may sellthe bulk drug at a price not exceeding the priceso notified. (b) Where the price of a bu ik drug has been mala fied by the Government. the manufacturer shall,within fourteen days of the of. commenecement of theproduction of such bulk drug make an applicationto the Government in Foem1 I and intimate Government the price at which h" intends to sell thebulk drug and the Government may, after making such inquiry as it desnu fit. by orders, fix a provisional price at which siicn buik drug shall be sold. shall, within six months of the commencementof such production, make 3 further application lothe Government in Form I and the Governmentmay, after making such inquiry as it deem-; fit, bynotification in the Official Gazette fix the price ofsuch bulk drug. Sub-para (2) of paragraph No. 3 refers to reasonable returnbeing allowed on net-worth. The expression on "net-worth" hasbeen defined in para 2 (m) to mean "the share capital of acompany plus free reserve, if any" In turn, para 2 (g) defines"free reserve" to mean "a reserve created by appropriation ofprofits, but does not include reserves provided for contingentliability, disputed claims, goodwill, revaluation and other similar reserves". The expression on "net-worth" hasbeen defined in para 2 (m) to mean "the share capital of acompany plus free reserve, if any" In turn, para 2 (g) defines"free reserve" to mean "a reserve created by appropriation ofprofits, but does not include reserves provided for contingentliability, disputed claims, goodwill, revaluation and other similar reserves". Paragraph 4 gives the power to the Centralgovernment to fix retention price and the common sale price. A provision similar to this did not exist in the DPCO of 1970. The said para 4 reads as under : "4. Power to fix retention price and common saleprice: Notwithstanding anything contained in paragraph S,the Government may, if it considers necessaryor expedient so to do for increasing the production of an indigenously manufactured bulk drugspecified in the First Schedule or the Secondschedule, by order published in the Officialgazette, fix: (a) a retention price of such bulk drugs ; (b) a common sale price for such bulk drug,taking into account the weighted average ofthe retention price fixed under clause (a ). Provided that the Government may, having regard tothe following factors, namely: (a) the production and requirement of such drug inthe country; (b) the need to afford protection to the productionof such bulk drug by the individual manufacturer ; (c) the planned growth of such drug and thegovernment Policy in force from time to time;by order, published in the Official Gazette, fix theretention price as the common sale price, that isto say the sale price, in respect of such bulk drugmanufactured by such manufacturer, as may bespecified in the said Order. "paragraph 5 requires every manufacturer of a new bulkdrug to make an application to ths Government within fourteen days of the commencement of production of the new bulkdrug. The Government is then given the power to decide whether to include such bulk drug in the DPCO of 1979 and to fixa provisional price thereof. After the provisional price is fixed,the maximum selling price is notified by the Government, afterit has made such inquiries as it deems fit. The Government is then given the power to decide whether to include such bulk drug in the DPCO of 1979 and to fixa provisional price thereof. After the provisional price is fixed,the maximum selling price is notified by the Government, afterit has made such inquiries as it deems fit. Sub-para (2) (c) ofparagraph 5 states that the price so fixed "shall be the maximumselling price of such new bulk drug and no person (includinga person manufacturing such bulk drug thereafter) shall sellsuch new bulk drug at a price exceeding the price so notified"under paragraph 6, power is given to fix the maximum saleprice of imported bulk drug while paragraph 7 givea the powerto fix retention price and pooled price for the sale of bulkdings specified in the First and the Second Schedule which areindigenously manufactured as well as imported. Paragraph 8gives an incentive to the produce s of bulk drugs throughoriginal research and development. The said para providesthat a bulk drug so produced, through original research anddevelopment in the country and which js not produced clsewhere, shall be exempt from the provisions of the Order for aperiod of five years from the date of commencement of theproduction of such new bulk drug. Paragraph 9 gives thepower to the Government to direct any manufacture of bulkdrugs to sell such bulk drugs to such manufacturers of formulations, and in such quantities, as may be specified in general orspecial orders to be passed by the Government. ( 19 ) THE D. P. C. O. also postulates- the fixing of retail pricesof formulations. Paragraph 10 sets out the formula for thecalculation of the retail price of fornulations. The said paragraph reads as follows : "10. Calculation of retail price of formulations-- Theretail price of a formulation shall be calculated inaccordance with the following formula, namely : -R. P. = (M. C. + C. C. + P. M. + P. C.) X 1 + MU + E. D. 100)Where r. P. means retail price. "m. C. " means material cost and includes the cost ofdrugs and other pharmaceutical aids used including averages, if any, and process loss thereon inaccordance with such norms as may he specified by the Government from time to time bynotification in the Official Gazette in this behalf. "m. C. " means material cost and includes the cost ofdrugs and other pharmaceutical aids used including averages, if any, and process loss thereon inaccordance with such norms as may he specified by the Government from time to time bynotification in the Official Gazette in this behalf. "c. C. " means conversion cost worked out in accordance with such norms as may be specified bythe Government from time to time by notification in the Official Gazette in this behalf. "p. M. " means the cost of packing material includingprocess loss thereon worked out in accordancewith such norms as may be specified by the Government from time to time by notification in theofficial Gezettc in this behalf. "p. C. " means packing charges worked out in accordance with such norms as may be specified bythe Government from time to time by notificationin the Official Gazette in this behalf. "m. U. " means mark-up referred to in paragraph 11. "e. D. " means excise duty: Provided that in the case of an imported formulation thelanded cost shall form the basis for fixing its pricealong with such margin as the Government, mayallow from time to time:provided further that where an imported formulationis repacked, its landed cost plus the cost of packingmaterials and packing charges as worked out inaccordance with such norms as may be specifiedby the Government from time to time by notification in the Official Gazette, shall form the basis forfixing its price. Explanation. For the purposes of this paragraph. "landed cost" shall mean the cost of import ofdrug inclusive of customs duty and clearingcharges. "according to paragraph 11 the mark-up referred to inparagraph 10 hereinabove, is to include distribution cost, outward freight, promotional expenses, manufacturer s margin andthe trade commission and is not to exceed forty per cent in thecase of formulations specified in Category I of the Third Schedule; fifty-five per cent in the case of formulations specified incategory II of the said Schedule; one hundred per cent in thecase of formulation specified in Category III of the saidschedule. Paragraph 12 enables the Government to fix leaderprices of formulations specified in Categories I and II of thethird Schedule. Paragraph 13 gives the power to the Government to fix retail prices of formulations specified in Categoryiii of the Third Schedule. The said paragraph reads as under :- "13. Paragraph 12 enables the Government to fix leaderprices of formulations specified in Categories I and II of thethird Schedule. Paragraph 13 gives the power to the Government to fix retail prices of formulations specified in Categoryiii of the Third Schedule. The said paragraph reads as under :- "13. Power of Government to fix retail price of formulation specified in Category III of the Third Schedule. (1) The Government may, from time to time, byorder, fix the retail price of a formulation specified in Category III of the Third Schedule inaccordance with the provisions of paragraphs 10and 11. (2) Where the Government fixes or revises the priceof any bulk drug under the provisions of thisorder and a manufacturer utilises such bulk drugin his formulations specified in Category III ofthe Third Schedule he shall, within thirty days ofsuch fixation or revision, make an application tothe Government in Form 3 or Form 4, as thecase may be, and Government may, if it considers necessary, fix or revise, the price, of suchformulation. (3) The retail price of a formulation once fixed bythe Government under sub-paragraph (1) shallnot be increased by any manufacturer exceptwith the prior approval of the Government. (4) Any manufacturer, who desires revision of theretail price of a formulation fixed under sub-paragraph (1), shall make an application to thegovernment in Form 3 or Form 4, as the casemay be, and the Government may, after callingfor such information as it may consider necessary,by order, fix a revised price for such formulation. (5) Notwithstanding anything contained in the foregoing sub-paragraphs, the retail price of a formulation, specified in Category III of the Thirdschedule, of a manufacturer shall, until theretail price thereof is fixed under the provisionsof this Order, be the price which prevailedimmediately before the commencement of thisorder and the manufacturer of such formulationshall not sell such formulation at a price exceeding the price which prevailed as aforesaid. (6) (a) Without prejudice to the provisions of thepreceding sub-paragraphs, the Government may,if it considers necessary or expedient so to do,by notification in the Official Gazette, fix a leaderprice for any formulations specified in Categoryiii of the Third Schedule and any manufacturerof such formulation may sell such formulationat a price not exceeding the price so notifiedand intimate the Government accordingly. (b) The provisions of sub-paragraph (2) shall notapply to such manufacturer. New formulations require the approval of the price from thegovernment under paragraph 14. (b) The provisions of sub-paragraph (2) shall notapply to such manufacturer. New formulations require the approval of the price from thegovernment under paragraph 14. Under paragraph 15, poweris given to the Government to revise prices of formulations fromtime to time. The next and the last important provision of thesaid order is that of the power of review contained in paragraph27, which reads as follows; "27. Power to review. Any person aggrieved by anynotification or order under paragraph 3, 4, 5, 6, 7, 9,12, 13, 14, 15 or 16 may apply to the Governmentfor a review of the notification or order withinfifteen days of the date of publication of the notification in the Official Gazette, or, as the case maybe, the receipt of the order by him and the Government may make such order on the application as itmay consider necessary. " ( 20 ) THE first important question which arises for consideration is as whether or not more than one maximum sale priceof a bulk drug can be fixed by the Government under theprovisions of paragraph 3. The contention on behalf of the petitioners is that under paragraph 3, in respect of a bulk drug, ifthe same is being manufactured by more than one efficientmanufacturer, different maximum sals prices can be fixed. Itwas argued that according to paragraph 3 (2) the maximumsale price is to be fixed having regard to the average cost ofproduction of an efficient manufacturer and the Government isalso to take into account a reasonable return onnet-worth. The average cost of production and the net-worth,it was submitted, may be different in the cases of two differentefficient manufacturers. Therefore, it was not possible to fix asingle maximum selling price in respect of a particular bulk drugmanufactured by more than one efficient manufacturer. Inthis connection, it was submitted that even though paragrh 3may be capable of literal construction to the effect that only asingle maximum price is envisaged but then in order to makethe DPCO workable it is necessary to give to para 3 such ameaning which would not fetter the power of the Governmentto flx several maximum prices which would make the ordermore flexible and would enable the Government to meet different situations. It was also submitted that a question had arisenbefore the Bombay High Court whether under para 4 of thedpco of 1970, which was akin to para 3 of DPCO of 1979,different maximum sale prices of a single bulk drug could befixed or not. This question had been raised- in the case ofsarabhai M. Chemicals Vs. Union of India and Ors. , Misc. Petition No. 616 of 1975 (1), which was decided by the Bombayhigh Court on 415-12-78. The contention of the petitionerbefore the Bombay High Court had been that paragraph 4 ofthe DPCO of 1970 did not envisage fixing of more than onemaximum selling price of a bulk drug. The Government, onthe other hand, had contended that more than one maximumsale price of a single bulk drug could be fixed. This contentionof the Government had been upheld. This beingso, it was not open to the respondents, it was contendedbefore us, to plead that several maximum prices under para 3of DPCO of 1979 could not be fixed. ( 21 ) SHRI Krishnamurthy, learned counsel for the respondents, however, contended that the reading of the entire DPCOof 1979, and of para 3 in particular, would show that morethan one maximum sale price of a single bulk drug, eventhough manufactured by more than one efficient manufacturer,is not postulated. ( 22 ) IT appears to us that the DPCO of 1979 does notcontemplate more than one maximum price being fixed underparagraph 3 of the said Order. The language of paragraph 3itself suggests that there can be only one maximum sale price. By sub-para (1) of para 3 the sale price which is to be fixedis of the bulk drug. If the contention of the petitioners was to beaccepted then para 3 would have been differently worded so asto indicate that the sale price which had to be fixed was of themanufacturer who manufactured the bulk drug. Sub-para (2)of paragraph 3 also makes a reference to the fixing of a priceof bulk drug and not fixing of a price for a manufacturer of abulk drug. It may be that there may he difficullty in fixing oneprice of a bulk drug under sub-para (2) of para 3 when thereis more than one efficient manufacturer of that bulk drug butthe difficulty in fixing a price cannot b3 a reason or an argumentfor giving a different interpretation to paragraph 3. It may be that there may he difficullty in fixing oneprice of a bulk drug under sub-para (2) of para 3 when thereis more than one efficient manufacturer of that bulk drug butthe difficulty in fixing a price cannot b3 a reason or an argumentfor giving a different interpretation to paragraph 3. How theprice can befixed under para 3 (2) where there is more thanone efficient manufacturer will be dealt with by us presently. The reading of para 3, however, makes it clear that if the contention of the petitioner is accepted, some of the provisionswould become unworkable. Sub-para (3) of paragraph 3states that no person is to sell a bulk drug a: a price exceedingthe price notified under sub-para (1) of para 3. If more Thanone price is notified unde para 3 (1) then it would be difficultto apply the provisions of para 3 (3 ). If more than one priceis notified a question would immediately arise as to which isthe bulk drug price which is not to be exceeded. Similar isthe position with regard to a manufacturer who commencesproduction of a bulk drug whose price is already notified. Sub-para (4) of paragraph 3 states that the said newmanufacturer may sell the bulk drug at a price not exceeding a pricenotified. Para 3 (4) would become unworkable if or a bulkdrug more than one price is notified. The plain reading ofparagraph 3 does not indicate that more than one maximumprice can possibly befixed by the Government. ( 23 ) THE matter may be viewed from another angle. Thedpco of 1979 has been issued under section 3 of the Essentialcommodities Act. The object of the Order, therefore, is, interalia, to secure equitable distribution of drugs and making themavailable at fair prices. The spirit and aim in enacting the DPCOof 1979, and paragraphs 3 and 4 in particular, is that thereshould be one maximum sale price of a bulk drug. If morethan one maximum selling price of bulk drug could be fixedunder paragraph 3, then it would really not have been necessaryto have incorporated paragraph 4 in the DPCO of 1979. The spirit and aim in enacting the DPCOof 1979, and paragraphs 3 and 4 in particular, is that thereshould be one maximum sale price of a bulk drug. If morethan one maximum selling price of bulk drug could be fixedunder paragraph 3, then it would really not have been necessaryto have incorporated paragraph 4 in the DPCO of 1979. Whereas the object of paragraph 3 is contained in para 3 (1)itself, namely, prices are fixed to make a bulk drug "availableat a fair price", paragraph 4 was enacted so as to help theindustry when the Government considers it necessary or expedient so to do "for increasing the production of an indigenouslymanufactured bulk drug". Even though the object of paragraph4 is to help the industry, care is taken that as far as the purchaser is concerned no extra burden is put on him. Paragraph 4provides for a common selling price being fixed for a bulk drugthough different retention prices may be fixed for differentmanufacturers. The scheme of paragraph 3 and paragraph 4,when read together, therefore, is that under paragraph 3 amaximum selling price of a drug is fixed. The manufacturersare free to sell the said drug at any price not exceeding themaximum price so fixed. Under paragraph 4 a manufacturerhas to sell the bulk drug at a common sale price but whatcan be retained by the manufacturer depends upon the retention price of such bulk drug which is fixed for each manufacturer. ( 24 ) THE decision of the Bombay High Court in the caseof Sarabhai M. Chemicals (supra) can have no application inthe present context. Sarabhai Chemicals case was concernedwith the fixation of price of bulk drug under the DPCO of1970. The language of paragraph 4 of DPCO of 1970 wasmaterially different from the language of paragraph 3 of thedpco of 1979. Moreover, in the DPCO of 1970 there wasno provision similar or analogous to paragraph 4 of DPCO of1979. The Bombay High Court in Sarabhai Chemicals casewas of the opinion that to fix a single price would be unfairto the different manufacturers or to the consumers. Realisingthis unfairness which may come about the Government, whilepromulgating the DPCO of 1979, thought it fit to insertparagraph 4. The Bombay High Court in Sarabhai Chemicals casewas of the opinion that to fix a single price would be unfairto the different manufacturers or to the consumers. Realisingthis unfairness which may come about the Government, whilepromulgating the DPCO of 1979, thought it fit to insertparagraph 4. The provisions of paragraph 4 ensure that whereit is thought expedient so to do, the Government can fix sellingprices not under paragraph 3 but under paragraph 4 and alsosimultaneously, fix different retention prices under the saidparagraph 4. Whether the prices are to be fixed under para 3or 4 is for the Government to decide after taking into accountall relevant facts and circumstances, including any representationwhich may be filed by any manufacturer. ( 25 ) BEFORE dealing with the question as to what is the fullscope and effect of paragraph 3 (2) of the DPCO of 1979. it isnecessary to dispose of another contention of the respondents. While relying upon the decision in the case of Prag Ice and Oilmills and another v. Union of India, (1978) 3 Supreme Courtcases 459 (2) it was contended by Shri Krishnamurthy thatfixation of price by an Order issued under section 3 of theessential Commodities Act is in the nature of legislative function and, therefore, the scope of interference is very limited. It was also contended that a price which may be unfair to theseller may still be regarded as a fair price as per section 3 of theessential Commodities Act. It is true that the Supreme Courtin Prag Ice case and also in Saraswati Industrial Syndicate Ltd. and others v. Union of India, (1974) 2 SCC 630 (3) has observed that price fixing is in the nature of a legistive function,but this submission is of little assistance in the present case. If the Government, as in Prag Ice case, had fixed the maximumselling price in the DPCO itself then, possibly the scope of interterence by the Court may have been negligible The challengeto such fixation of price by the Mustard Oil (Oruce Control)Order, 1977 in Prag Ice case, therefore, failed. In the presentcase, as already noted, paragraph 3 does not fix the maximumsale price of a bulk drug. There is no challenge, to paragraph3. The contention, on the other hand, of the petitionersisthat while fixing the price, paragraph 3 of the DPCO of 1979has not been complied with. In the presentcase, as already noted, paragraph 3 does not fix the maximumsale price of a bulk drug. There is no challenge, to paragraph3. The contention, on the other hand, of the petitionersisthat while fixing the price, paragraph 3 of the DPCO of 1979has not been complied with. The petitioners desire the fixationof price in accordance with the provisions of para 3 of thedpco of 1979. The decision in Prag Ice case, therefore, isof little assistance to the respondents, because whereas in Pragice case the challenge was to the provisions of the Controlorder itself, in the present case the challenge is to the allegednon-compliance with the provisions of the Control Order. Theenactment of paragraph 3 of the Order may be a legislativeact but it is open to the Court to see whether the provisions ofthe said paragraph 3 have or have not been violated. ( 26 ) IT was then submitted by the learned counsel for therespondents that paragraph 3 (2) does not make it obligatoryon the Government to rigidly follow and take into account thecost of production of an efficient manufacturer of a bulk drugand nor is it necessary to allow reasonable return on net-worth. It was submitted that sub-para (2) of paragraph 3-uses theexpression "the Government may take into account. . . . ". Theuse of the word may , it was submitted, does not make it obligatory on the Government to take the two factors specified inpara 3 (2) into account. We are unable to agree with thiscontention. Para 3 (1) itself states that the fair price to befixed will be "subject to the provisions contained in sub-para (2 ). . . . "it is true that in para 3 (2) the word used is may but in the context in which it has been used, it can only meanthat the Government, while fixing the price under para 3 (1),has to take into account the average cost of production of thebulk drug manufactured by an efficient manufacturer and alsohas to allow a reasonable return on net-worth. The provisionsof para 3 (2) are similar and analogous to the provisions ofsection 3 (3) (C) of the Essential Commodities Act, which readas follows : "3 (3-C ). Where any producer is required by an ordermade with reference to Cl. The provisionsof para 3 (2) are similar and analogous to the provisions ofsection 3 (3) (C) of the Essential Commodities Act, which readas follows : "3 (3-C ). Where any producer is required by an ordermade with reference to Cl. (f) of sub-section (2)to sell any kind of sugar (whether to the Centralgovernment or a State Government or to an officeror agent of such Government or to any other person or class of persons) and either no notificationin respect of such sugar has been issued undersub-section (3-A) or any such notification, havingbeen issued, has ceased to remain in force by effluxof time, then, notwithstanding anything contained in sub-section (3), there shall be paid to thatproducer an amount therefor which shall be calculated with reference to such price of sugar asthe Central Government may, by order, determine,having regard to (a) the minimum price, if any, fixed for sugarcaneby the Central Government under this section: (b) the manufacturing cost of sugar; (c) the duty or tax, if any, paid or payable thereon;and (e) the securing of a reasonable return on the capital employed in the business of manufacturingsugar,and different prices may be determined, from timeto time, for different areas, or for different factories or for different kinds of sugar. Explanation. For the purpose of this sub-section,"producer" means a person carrying on the business or manufacturing sugar. "while construing section 3 (3-C) of the Essential Commodities Act a question had arisen whether reasonable return onthe. capital employed had to be given or not. It was held inthe case of Panipat Co-operative Sugar Mills etc. v. Union ofindia, AIR 1973 S. C. 537 (4) and in Anakapalle Co-op. Agri. and Industrial Society Ltd. etc. v. Union of India and others,air 1973 S. C. 734 (5) that under section 3 (3-C) of theessential Commodities Act it was statutorily obligatory to ensure to the industry a reasonable return on the capital employed in the business of manufacturing-sugar. This Courtalso had an occasion to deal with section 3 (3-C) in the caseof Sugar Mills Co. Ltd. and another v. Joint Secretary (Sugar)Government of India and others, AIR 1984 Delhi (282) (6 ). After referring to Panipat Sugar Mills case and also to Paraice case, this Court observed that section 3 (3-C) of the Essential Commodities Act did not permit the Government to ignore any of the four postulates provide in that section. Ltd. and another v. Joint Secretary (Sugar)Government of India and others, AIR 1984 Delhi (282) (6 ). After referring to Panipat Sugar Mills case and also to Paraice case, this Court observed that section 3 (3-C) of the Essential Commodities Act did not permit the Government to ignore any of the four postulates provide in that section. Thiswas notwithstanding the fact that in section 3 (3-C) itself theexpression used was ". . . . . . . . the Central Government may,by order, determine, having regard to the four". The use ofthe word may did not give the power to the Government toignore any of the four factors mentioned in section 3 (3-C ). Similarly the use of the word may in paragraph 3 (2) of thedpco of 1979 would not enable the Government to disregardthe cost of production and the return on net-worth. ( 27 ) TWO things which have to be taken into account whilefixing the maximum price of bulk drug are the average cost ofproduction of an efficient manufacturer and the net-worth onwhich reasonable return has to be allowed. In the case ofa bulk drug which is being manufactured by only one manufacturer, the fixation of price may not present much difficulty. In such a case the price will be fixed after taking into accountthe average cost of production of that manufacturer and, infixing the price, the Government will also allow a reasonablereturn on net-worth. Net-worth has been defined by para2 (m) read with para 2 (g) of the Grocer in the case of anefficient manufacturer, it means the share capital plus freereserves. Literally construed, the Government will have toallow a reasonable return on the net-worth of a manufacturernotwithstanding the fact that the said manufacturer may behaving other business activity also in which part of his share capital is employed and out of which some of its free reserves,are created. Could the intention of para 2, therefore, be thatin the case of a bulk drug manufacturer, who has other business activity also, the reasonable return has to be on the net-worth of the entire business activity or is the net-worth to beapportioned to the extent to which the business activity consists of the manufacture of bulk drug ? Could the intention of para 2, therefore, be thatin the case of a bulk drug manufacturer, who has other business activity also, the reasonable return has to be on the net-worth of the entire business activity or is the net-worth to beapportioned to the extent to which the business activity consists of the manufacture of bulk drug ? Keeping in viewthe nature of the legislation, para 3 (2) has to be so construedso as not to allow any unconscionable gains to a manufacturerwhich would result in fixing of a high price of a bulk drug. Para 3 (2) read with. paras 2 (m) and 2 (g), therefore, have tobe construed so as to mean the allowance of reasonable returnon net-worth of a manufacturer to the extent it can be apportioned or allocated to the manufacturer s activity of the manufacture of bulk drug of which the price under paragraph 3 (1)is to be fixed. ( 28 ) THE next question which arises for consideration is asto what happens if there is more than one efficient manufacturerof a bulk drug. Paragraph 3 is silent on this point. We havealready held that para 3 postulates the fixation of only a singlemaximum bulk drug price. Para 3 (2) requires the Governmentto take particulars of anefficient manufacturer while fixing theprice. Efficient manufacture has been defined in explanation to paragraph 2 (m ). The only reasonable manner in whichpara 3 (2) can be made workable in cases where there are morethan one efficient manufacturers would be to take weightedaverage of the cost of production of the two or more efficientmanufacturers and also weighted average of the net-worth andthen to allow a reasonable return thereon. The taking intoaccount of the cost of production and the net-worth of only oneor two or more efficient manufacturers would be unfair and discriminatory to those efficient manufacturers whose cost andnet worth is ignored. The use of the expression "may take intoaccount" in paragraph 3 (2) gives the Government a bit ofelbow room in fixing the price. It would mean that the Government should take the weighted cost of production of alltheefficient manufacturers and also their respective net-worths andthereafter fix the price of a bulk drug. This, in our opinion,is the only way in which paragraph 3 (2) can be made workable. It would mean that the Government should take the weighted cost of production of alltheefficient manufacturers and also their respective net-worths andthereafter fix the price of a bulk drug. This, in our opinion,is the only way in which paragraph 3 (2) can be made workable. ( 29 ) IT was submitted on behalf of the petitioners that, whileissuing the impugned notification whereby drug prices were fixed, the Government did not take into consideration the cost ofproduction nor did it allow reasonable return on the net-worth. It is not necessary for us to go into this question at this stageand examine all the facts for ourselves because we are of theopinion that the impugned notifications are liable to be quashedbecause of non-compliance with the principles of naturaljustice. ( 30 ) IT is not in dispute that the maximum prices of bulkdrugs, as well as of the formulation, had been fixed by thegovernment prior to the coming into fores of the DPCO of1979. As regards the bulk drugs, para3 (3) proviso providedthat till price of bulk drug was notified under paragraph 3 (1)of the DPCO of 1979, no manufacturer, after the commencementof the DPCO of 1979, shall sell bulk drug in excess of the priceso fixed. In other words, the prevailing bulk drug prices weregiven statutory recognition by the DPCO of 1979. The manufacturers got a statutory right to sell the bulk drugs at theprices which were prevailing prior to the promulgation of thedpco of 1979. By the impugned notifications what the Government has sought to do is to alter these prices. By the saidnotifications the bulk drug prices which were prevailing weresought to be reduced. The petitioners have been asking for theincrease of the prices of bulk drugs because, according to them,the cost of production etc. had gone up. As we are not required to express any opinion in these cases on the question as towhether rules of natural justice will be attracted where a bulkdrug price is fixed for the first time under Section 3 of the Essential Commodities Act, we refrain from expressing any opinion. We are, however, of the view that when there is a price of adrug which has been statutorily fixed then it would be unfair toalter the same to the prejudice of a manufacturer without givinghim an opportunity of being heard. We are, however, of the view that when there is a price of adrug which has been statutorily fixed then it would be unfair toalter the same to the prejudice of a manufacturer without givinghim an opportunity of being heard. By virtue of paragraph 3of the DPCO manufacturer had a statutory right to chagre aparticular price which had been fixed prior to the DPCO of 1979. Any variation of this price to his detriment, would cause civilconsequences. It is now well settled that no action adverseto a person will be taken without that person being afforded areaonable opportunity of at least representing its case. It istrue that in the case of Saraswati Industrial Syndicate (supra)it was stated that fixation of price was in the nature of legislative measure, and it could not give rise to a complaint thatthe rule of natural justice has not been followed, but that wasa case where the price was fixed for the first time. Though thejudicial thinking in recent times appears to be in favour of invoking the principles of natural justice even in such a case,nevertheless, the ratio in the decision of Saraswati Industrialsyndicate s case need not detain us because in the present casethe bulk drug price is not being fixed for the first time out whatis being done is that the price already fixed is sought to be altered to the detriment of the petitioners. It may not be necessaryin this connection to give a personal hearing to a manufacturer,but the manufacturer must be informed as to the basis on whichthe Government wishes to alter the price and it should give themanufacturer an opportunity of making a representation in orderto explain its point of view. That would be the minimum requirement which is expected in such a case. It should be bornein mind that the frontiers of natural justice have been extendedeven to cases of the renewal of licences. In the case of Rajrestaurant and another v. Municipal Corporation of Delhi, AIR1982 S. C. 1550 (7), the Supreme Court held that the refusal togive licence or cancellation or revocation of licence would bevisited with both civil and pecuniary consequences and, thereforethe minimum principle of natural justice of notice andopporunity to represent one s case was a must. The same principle would apply to the present case. The same principle would apply to the present case. As we have alreadyobserved, the alteration of the price of the bulk drugs to thedetriment of the manufacturers would be visited with both civiland pecuniary consequences and, therefore, the minimum adherence to the principle of natural justice would demand the issuance of a notice by the Government spelling out of the factorson the basis of which it intends to alter the price, and the givingof an opportunity to the manufacturer to represent its case. ( 31 ) THE matter may be viewed from another angle. Priceis fixed by the Government under paragraph 3 on the basis ofcertain material. Fixation of price without any material orbasis would per se be arbitrary and bad in law. But where thegovernment has obtained material which may justify the alteration of price, it is but fair that the manufacturer who is goingto be adversely affected by the re-fixation of price is told or informed about the material which the Government has been ableto obtain and on which it wants to rely. The manufacturer hasto be given an opportunity to make an effective representation. The opportunity which is to be given has to be meaningful andhas not to be an eye-wash. Any price which is fixed withoutcomplying with the minimum requirement of the principles ofnatural justice will, therefore, be bad in law and has to bequashed. ( 32 ) IT may be that under certain circumstances it may notbe practical or feasible to give such an opportunity before fixingor revising a bulk drug price. In such a case at least postfacto hearing ought to be given. In this connection we mayrefer to the provisions of para 27 of the DPCO of 1979 thatenables any person, inter alia, aggrieved by the price of bulkdrug or formulation which is fixed to apply for a review to thecentral Government. This review would be obviously meaningless andincomplete unless and until the manufacturer is informed about the basis which has been adopted by the Government in revising the price. The review would be effective andmeaningful if, at least whenever demanded, the Central Government informs the manufacturer, who is aggrieved, about thematerial which it has collected on the basis of which the pricehas been fixed or revised. The review would be effective andmeaningful if, at least whenever demanded, the Central Government informs the manufacturer, who is aggrieved, about thematerial which it has collected on the basis of which the pricehas been fixed or revised. The mere fact that the material onwhich the Government has acted is the one supplied by otherefficient manufacturer would not entitle the Government to holdback that material. ( 33 ) IN the present case it is not denied that no such opportunity was given to the petitioners prior to the issuance of thevarious notifications whereby the prices of the bulk drugs aswell as formulations were revised or fixed. The petitioners havehad to file applications for review under paragraph 27 withoutknowing the basis on which the various notifications have beenissued by the Government fixing different prices. In the return filed by the respondents, the material was again not disclosed. It is only during the course of hearing of the writpetitions that some, though not all, facts and figures on thebasis of which the Government had acted had been placedbefore us. The principles of natural justice would require thatthese and the other relevant facts and figures, are told to thepetitioners who should then be given an opportunity of makinga representation. ( 34 ) WHILE on this question, there is one other aspect onwhich we would like to dwell. After the prices of bulk drugsor formulations are notified, it becomes incumbent upon themanufacturer and the seller not to sell the drugs in excess ofthe prices so notified. Paragraph 27 requires an applicationfor review being filled within 15 days of the date of publicationof the notification in the Official Gazette whereby the pricesare notified. It is true that the DPCO of 1979 does not contain any provision which makes it incumbent upon the Government to dispose of the review petition filed under paragraph27 within any specified period. In view, however, of the factthat the notified prices become immediately applicable, it isonly fair and proper that any application for review which isfiled under para 27 should be disposed of as expeditiously as737possible. If unreasonable time is taken in disposing of suchapplication, it will create complications. For example, thefixation of price of a bulk drug would also affect the fixationof price of the formulations. If unreasonable time is taken in disposing of suchapplication, it will create complications. For example, thefixation of price of a bulk drug would also affect the fixationof price of the formulations. If the fixation of price of a bulkdrug is under challenge, by way of a review, it will be impractical to fix the price of formulations. ( 35 ) IN view of the fact that the notifications fixing thebulk drug prices have to be quashed because of non-compliancewith the principles of natural justice, it must follow that thenotifications whereby the prices of various formulations werealso fixed have also to be set-aside. 'the prices of formulationscan only be fixed or altered after the prices of the bulk drugsare finally determined because the bulk: drugs are part of theraw-materials for the manufacture of the formulations andthe price of the bulk drug, which has to bs paid, is taken intoconsideration while determining the price of the formulations. ( 36 ) THE learned counsel for the petitioners had also challenged the notifications fixing the prices of bulk drugs and formulations on a number of other points, It is not necessary forus to dwell on all the submissions so raised because it will beopen to the petitioners to raise the said contentions before therespondents when the petitioners are given an opportunity ofmaking the representations. The contentions on merits oughtto be raised by the petitioners before the said authorities whowill, we are sure, apply their mind and would thereafter takea just and fair decision. Therare, however, a few contentionswhich were raised which do require our attention. We willnow briefly deal with those. ( 37 ) IN the case of manufacturers of bulk drug, it was contended that some of the manufacturers are incurring expenseswith regard to research and development of new bulk drugs. The submission of the petitioners was that the expenses soincurred have to be taken into consideration by the respondentswhile calculating the cost of production of the bulk drugs, forthe purposes of fixing the price under paragraph 3 of the saidorder. The respondents, in their return, have not denied thatresearch and development expenses have to be allowed. Thecase of the respondents is that research and development expenses were to be allocated between bulk drugs and formulationson the basis of the ratio of conversion cost or bulk drugs tothe total conversion cost of bulk drugs plus formulations. The respondents, in their return, have not denied thatresearch and development expenses have to be allowed. Thecase of the respondents is that research and development expenses were to be allocated between bulk drugs and formulationson the basis of the ratio of conversion cost or bulk drugs tothe total conversion cost of bulk drugs plus formulations. Thiscase of the respondents was made known to the petitioners atthe meeting held on 2nd February, 19s3. If the manufacturersare aggrieved by this principle which has been adopted by therepsondents, then it will be open to them to agitate the sameand to make such submissions as they may be advised. Atthis stage we would hesitate to express any opinion as to whetherthe allocation of the expenses by the Government in the aforesaid manner was proper or not. We however, do note that itis not the case of the respondents that research and development expenses are not allowable at all while computing the costof production of bulk drugs. In fact, the respondents are stated to have taken a portion of the research and developmentexpenses into account while computing the cost or productionof bulk drugs. But what extent these expenses would be includablec in computing the cost of production of bulk drug willhave to be decided by the respondents after they have obtainedall the material from the manufacturers and they have madenow to the manufacturers the basis which the respondentsintend to follow in this behalf. ( 38 ) BEFORE parting, we may note that Shri Krishnamuurthyhad sought to contend that on a correct interpretation of theorder, research and development expenses may not be takeninto consideration while computing the cost of production. Itisnot open to the learned counsel to raise such a contention. Firstly, as already noted, in the return to the writ petition nosuch contention has been raised; secondly the Governmentitself has allowed and taken part of the research and developmentexpenses into account while working out the cost of productionand; thirdly, Schedule I of the Cost Accounting Records (Bulk-Drugs) Rules, 1974 also indicates that such expenses are to betaken into account while determining the cost of production. Para XV of the said Schedule, which refers to research anddevelopment expenses, reads as follows. "research and development expenses : Adequate recordsshowing the details of expenses incurred by thecompany for the development of existing productsor new products or processes, if any, shall bemaintained separately. Para XV of the said Schedule, which refers to research anddevelopment expenses, reads as follows. "research and development expenses : Adequate recordsshowing the details of expenses incurred by thecompany for the development of existing productsor new products or processes, if any, shall bemaintained separately. If the Research and Development Department is also engaged in the designand development of the Plant facilities, the appropriate share thereof shall be capitalised. Themethod of charging research and developmentexpenses to the cost of production shall be indicated in the relevant cost records and such expenses shall be charged to bulk drugs and intermediates on a reasonable basis. "moreover proforma B of Schedule II of the Rules prescribedthe form of statement showing cost of the particular intermediate/final bulk drug, manufactured during the year. Underitem 8 of the particulars to be kept and maintained on thebasis of unit-wise (i. e. per Kg.) cost of production, is "research and Development". This also indicates that there is statutory recognition of the fact that research and developmentexpenses are to be taken into consideration while working outthe cost of production. ( 39 ) IN working out the price of formulations, the respondents have taken into consideration the minimum bonus whichis payable under the Payment of Bonus Act. The contention ofthe petitioners is that this practice which is adopted by the respondents is not warranted. According to the petitioners, it paysto its employees bonus which it is required to pay in accordancewith law, either by virtue of the provisions of the Paymentof Bonus Act or because of any agreement which may havebeen entered into between the management and the workers orany other bonus which the management thinks it proper toallow to its workmen and other staff. The submission of thepetitioners is that cost of production cannot be correctly workedout without taking into account the actual bonus which is paidby the manufacturers. A manufacturer has to incur varioustypes of expenses in the manufacutre of bulk drugs. It isobligatory on the manufacturer, to whom the Payment ofbonus Act applies, to pay bonus in accordance with the saidact. Payment of bonus under the Act or in furtherance of anagreement between the staff and the management would be anecessary outgoing and is an expense which has to be takeninto consideration while working out the cost of production. It isobligatory on the manufacturer, to whom the Payment ofbonus Act applies, to pay bonus in accordance with the saidact. Payment of bonus under the Act or in furtherance of anagreement between the staff and the management would be anecessary outgoing and is an expense which has to be takeninto consideration while working out the cost of production. It is true that in the proforma prescribed in the Fourthschedule to the Drugs (Price Control) Order, 1979 bonus inexcess of statutory minimum is to be excluded from cost. Thisis provided in the notes to the said proforma. In our opinion,there is no warant for excluding any such expense. It will beseen that in the notes it is also provided that expenses not recognised by the Income Tax Authorities (salary, perquisities,advertisement, etc.) are to be excluded from cost. It wouldmean that salary, perquisities etc. which are paid and allowedby the Income tax authorities are to be included in computing thecost of production. If this is so, we fail to understand as towhy bonus, whether it be statutory minimum or otherwise. which is allowable by the Income tax authorities can possiblybe ignored, wholly or in part while computing the cost of production. In our opinion, every statutory and other outgoing ofa manufacturer which is allowable by the Income-tax authoritieshas to be taken into consideration while computing the cost ofproduction. To restrict the allowance only to the extent of statutory minimum would be unfair, unjust and incorrect as the manufacturer cannot escape his liability of payment of bonus of anamount larger than the minimum bonus if in law the manufacturer is so obliged to make the payment. It is, of course,clarified that the expenses which are allowable by the Incometax Authorities and which are to be taken into consideration forthe purpose of determining the cost of manufacture are onlythose expenses which are relatable to the cost of manufacture ofthe bulk drugs or formulations in question. ( 40 ) ANOTHER question on which there is considerable divergence between the parties is with regard to the working of theformula provided in paragraph 10 of the Order with regard tothe fixation of the retail price of formulations. According tothe petitioners, para 10 requires that norms on which conversion cost, cost of packing material and packing charges are tobe calculated have to be notified by the Government from time totime in the Official Gazette. According tothe petitioners, para 10 requires that norms on which conversion cost, cost of packing material and packing charges are tobe calculated have to be notified by the Government from time totime in the Official Gazette. The submission was that this wasnotbeing done. On the other hand, the respondents contend thatby order dated 3/05/1979 the norms have been fixed. Ourattention has been drawn to the said Order. The said Ordermerely lays down the conversion cost and the packing chargeswhich have to be taken into consideration while fixing the priceof formulations. The basis on which these costs have beenarrived at is not indicated. What is required to be notifiedunder paragraph 10 is not the conversion cost or the packingcharges but the norms on which the same are to be calculated. The petitioners are justified in contending that they do not knowas to what is the basis or norms adopted while fixing the conversion cost and packing charges by order dated 3/05/1979. As regards packing material, it is admitted that no notificationat all has been issued. It is true that in the notification of3-5-79 it is said that norms for conversion cost and packingcharges are being issued, but the plain reading of the said notificaticn shows that the norms are not indicated. It is only theconversion cost and packing charges arrived at by the Centralgovernment which have been notified. We dare say that theseconversion costs and packing charges must have been arrived atby the Government by applying same norms. What thosenorms or principles are, have not been indicated or disdosedeither to this Court or to the petitioners. In our opinion, therefore, while fixing the price of formulations the respondents mustinform the petitioners as to the basis of the calculation of theconversion cost, packing charges and cost of packing material. The Government should take into consideration the representations and the submissions which the petitioners may make inthis behalf before determining the conversion cost, cost ofpacking material and packing charges. Furthermore, unlessand until the norms as postulated by paragraph 10 are notified,which norms again ought not to be arbitrary or unrealistic, thepetitioners would be entitled to contend that the actual cost ofconversion, the actual cost of packing material and the actualpacking charges incurred should be taken into considerationwhile fixing the price of the formulations. Furthermore, unlessand until the norms as postulated by paragraph 10 are notified,which norms again ought not to be arbitrary or unrealistic, thepetitioners would be entitled to contend that the actual cost ofconversion, the actual cost of packing material and the actualpacking charges incurred should be taken into considerationwhile fixing the price of the formulations. If however, thecentral Government feels that there is justification for ignoringthe figures so submitted by the petitioners, it should give outits mind to the petitioners, let them make a representation andthen take a final decision in the matter. ( 41 ) THE petitioners also raised contentions with regard tothe mark-up it should be allowed and the categorisation of thedrugs. These are submissions which, in our opinion, should bemade before the Governmental Authorities. The Government,we are sure, will take all the facts and circumstances into consideration before taking a decision. Similarly, as to who canbe regarded as an efficient manufacturer will also have to bedecided by the Government. If the Government is of theopinion that more than one manufacturer is to be regarded asan "efficient manufacturer" within the provisions of paragraph3 of the Order then in working out the weighted cost of production etc. the figures which are supplied by the manufacturersshould be made known to the other efficient manufacturers before a final decision is taken. ( 42 ) BRIEFLY stated, the conclusions which we have arrived athereinabove are as follows : 1. Under Paragraph 3 of the D. P. C. O. of 1979 onlyone maximum sale price of bulk drug can be fixed. Where different prices are considered to be moreappropriate for different manufactures, recoursewill have to be taken to paragraph 4 of thed. P. C. O. 2. While re-fixing the sale price of bulk drugs or formulations, principles of natural justice are applicable. Particulars on the basis of which the pricesare to be re-fixed should be made known to themanufacturers, opportunity given to them to makea representation and then a decision taken. 3. In cases where prices are fixed for the first time itmay not be necessary to allow a representation tobe made before the prices are fixed. Where, however, an application for review is filed under paragraph 27 then, on being required to do so, the Government should supply all the material which it hastaken into consideration while notifying the prices. 3. In cases where prices are fixed for the first time itmay not be necessary to allow a representation tobe made before the prices are fixed. Where, however, an application for review is filed under paragraph 27 then, on being required to do so, the Government should supply all the material which it hastaken into consideration while notifying the prices. This procedure has also to be adopted by the Government even in those cases where prices have beenre-fixed and where such opportunity had not beengranted earlier. 4. All expenses which are allowable by the Income-tax Authorities, including bonus actually paid andother statutory expenses incurred, in so fur as theyrelate to the manufacture of drugs, have to be takeninto consideration while computing the cost of production. 5. Expenses incurred on-research and developmenthave also to be taken into consideration while computing the cost of production. 6. Norms regarding packing charges, conversion costand cost of packing material have to bs notified. Till such norms are notified, in fixing the prices offormulations the actual expenses so incurred by theformulators have to be taken into consideration. 7. All questions regarding categorisation of formulations, quantum of return on capital /net-worth, costof production, who is an efficient manufactureretc. are to be raised before the Government Authorities who will decide the same after giving a reasonable opportunity to the manufacturers and afterthe Government has disclosed the basis on which ithad fixed or re-fixed the prices of bulk drugs andformulations. ( 43 ) FOR the aforesaid reasons the writ petitions are allowed. The impugned orders fixing the price of bulk drugs and formulations are quashed. The petitionrs have, in respect of all theorders which have been challenged in these petitions, filed review applications under paragraph 27 of the DPCO of 1979which are pending. Regarding the disposal of the said reviewapplications, we give the following directions :- (A) Within 15 days from today the petitionrs shallwrite to the Government askins for the particularswhich they want in order to challenge the priceswhich have been notified. (B) Within 2 months of the receipt of the said lettersthe Government will furnish the particulars askedfor, in so far as they are available with the Government, to the petitioners. (C) The petitioners shall make the representation to thegovernment within one month thereafter. (D) The Government will finally decide the review applications within two months of the receipt by thegovernment of the said representations. (C) The petitioners shall make the representation to thegovernment within one month thereafter. (D) The Government will finally decide the review applications within two months of the receipt by thegovernment of the said representations. Beforedeciding the applications, the Government may if itso deems necessary, give a personal hearing to therepresentatives of the petitioners. ( 44 ) WE further direct that until prices are re-fixed after thedisposal of the review applications underparagraph 27, thestatus quo on the prices of bulk drugs and formulations prevailing prior to the issue of the impugned notifications shall bemaintained subject to the condition that wherever the existingprices of bulk drugs and formulations fixed subsequent to thefiling of the writ petitions are higher than the prices fixed earlier, then the subsequent notified prices would prevail. The petitioners will be entitled to costs. Petitions allowed.