1991 INSC 0024
      Balakrishna Pillai, Chief Inspector of Drugs Intelligence Squad, Trivandrum and Another

                                                           Vs

                                            Matha Medicals and Others

                                         Criminal Appeal No. 37 of 1991

                                            (B. C. Ray, J. S. Verma JJ)

                                                      15.01.1991

                                                     JUDGMENT

VERMA, J. ­

1. The respondents were found guilty by the trial court for contravention of para 21 read with para
18 of the Drugs (Prices Control) Order, 1979 (hereinafter referred to as 'the Order') issued under
Section 3 of the Essential Commodities Act, 1955 (hereinafter referred to as 'the Act') and
accordingly convicted under Section 7 of the Act. Respondent 1 firm was sentenced to a fine of Rs.
2000 while respondents 2 and 3 who were the managing partner and pharmacist of the firm were
sentenced to three months simple imprisonment. The High Court of Kerala at Ernakulam
(hereinafter referred to as 'the High Court' allowed their appeal against the conviction and sentence
and acquitted all of them. Hence, this special leave petition against their acquittal.

2. Leave granted.

3. The allegation on which the prosecution of the respondents was based is that they collected Rs.
90 in excess of the maximum retail price fixed for the sale of 15 tablets of Largactil of 100 mg. each
and 60 p. in excess for 100 tablets of Hipnotex of 5 mg. each from one Sebastain Joseph, a Nursing
Assistant in the Medical College Hospital, Kottayam, on February 4, 1985. It is alleged that
recovery of the amount in excess of the maximum retail price fixed for the sale of these medicines
under the Drugs (Prices Control) Order, 1979 was a contravention of the provisions contained
therein which is punishable under Section 7 of the Essential Commodities Act, 1955. The trial court
rejected the several defences raised by the respondents and found them guilty of contravention of
para 18 read with para 21 of the Order which is an offence punishable under Section 7 of the
Essential Commodities Act, 1955. The respondents were accordingly convicted and sentenced as
aforesaid.

4. As earlier stated, the respondent's appeal to the High Court has succeeded and they have all been
acquitted. The High Court has taken the view that on these allegations, contravention of para 18 of
the Order is not made out. The High Court has summarised its conclusion as under :

                  "The upshot of the above discussion is that Largactil and Hipnotex - Chlorpromazine
                  and Nitravzepam - are only bulk drugs and not formulation. The appellants, none of
                  whom is a manufacturer or distributor, cannot be convicted for contravention of
                  paragraph 18 of the Order. (The position is seemingly different in the Order of 1987
                  because paragraph 18 of the Order of 1987 contains inhibition against sale of bulk
                  drugs also.)
                  In the result, I allow this appeal and set aside the conviction and sentence. The
                  appellants are acquitted and are directed to be set at liberty."

5. The real question for decision in the present case is the correctness of the construction made by
the High Court of the provisions of the 'Order'. Shri P. S. Poti, learned counsel for the appellants
contended that the grievance in his appeal is really to the construction made by the High Court of
the provisions of the 'Order' which is affecting a large number of similar matter and not to the
outcome of individual matter before us. Learned counsel contended that the appellants are not much
interested in assailing the acquittal in the present individual matter, but the correct construction of
the provisions of the Order is necessary, for future guidance. In our opinion, it is necessary to
examine the provisions of the 'Order' and to indicate their correct meaning in view of the general
importance thereof.

6. The Order was made by the Central Government in exercise of the powers conferred by Section 3
of the Essential Commodities Act, 1955. Para 2 of the Order contains the definitions, some of which
may be referred. Clause (a) of para 2 defines 'bulk drug' to mean any substance .... 'which is used as
such, or as an ingredient in any formulation's. 'Dealer' is defined in clause (b) to mean a person
carrying on the business of purchase or sale of drugs, whether as a wholesaler or retailer and
includes an agent of a dealer. 'Drug' is defined in clause (d) to include 'bulk drugs and formulations'.
Clause (f) defines 'formulations' to mean a medicine processed out of, or containing 'one or more
bulk drugs or drug'. Clause (q) defines 'price list' to mean a price list referred to in this Order.
Clause (r) defines 'retails price' to mean the retail price of a drug arrived at or fixed in accordance
with the provisions of this Order. The other clauses of para 2 contain other definitions including the
definitions of 'retailer' and 'wholesaler'. It is not necessary to refer to them in detail. Para 3 contains
the power to fix the maximum sale price of indigenously manufactured bulk drugs specified in First
or Second Schedule to the Order. Para 19 requires every manufacturer or importer of a formulation
to furnish to the dealers, State Drug Controllers and the government, a price list showing the price at
which the formulation is sold to a retailer and every dealer is required to display the price list at a
conspicuous part of his business premises. Para 20 requires every manufacturer, importer or
distributor of a formulation to display on label of the container the maximum retail price of that
formulation. Paras 18, 21 and 22, the construction of which is in dispute, read as under :

                  "18. Certain provisions of his Order to apply to formulations not included in
                  Category I, Category II or Category III of third Schedule. - The provision of this
                  Order, other than those contained in paragraph 10 to 14 (both inclusive), shall apply
                  to any formulation not specified in Category I, Category II or Category III of the
                  Third Schedule."

                  "21. Control of sale prices of formulations specified in Third Schedule. - No retailer
                  shall sell any formulations specified in any of the categories in the Third Schedule to
                  any person at a price exceeding the price specified in the current price list or the price
                  indicated on the label of the container or pack thereof whichever is less plus the local
                  taxes, if any, payable.

                  Explanation. - For the purposes of this paragraph, 'local taxes' include sales tax and
                  octroi actually paid by the retailer under any law in force in a particular area."

22. Sale of split quantities of formulations. - No dealer shall sell loose quantity of any formulation
drawn from a bottle pack of a such formulation at a price which exceeds the pro-rata price of the
formulation plus 5 per cent thereof :

                  Provided that nothing in this behalf shall apply to any formulation compounded at
                  the premises of the dealer."

7. The view taken by the High court is that the two formulations, namely, Largactil and Hipnotex,
the sale of which at an excess price is alleged to be the contravention of the Order, not being
formulations specified in any of the categories in the Third Schedule to the Order, the prohibition
contained in para 21 of the Order has no application. On this basis, the view taken is that the sale of
these two formulations in excess of the retail price fixed for their sale is not a contravention of any
provisions of the Order to attract the punishment provided under Section 7 of the Essential
Commodities Act, 1955. It has also been held by the High Court that none of these two medicines is
a formulation as defined in clause (f) of Para 2 of the Order but merely a bulk drug, which fact also
excludes the application of para 21 of the Order. It appears that this position was not seriously
contested even by the learned public prosecutor in the courts below. In our opinion, such a view
results from a misreading of the material provisions of the Order.

8. The definition of 'bulk drug' given in clause (a) of para 2 shows that it means any substance
'which is used as such' or 'as an ingredient in any formulations'. Thus a bulk drug is one which may
be capable of use by itself or as in ingredient in any formulation. Drug is defined in clause (d) of
para 2 to include 'bulk drugs' and 'formulations'. Clause (f) then deafened 'formulation' to mean any
medicine processed out of or containing one or more bulk drugs or drug. Thus formulation is a
medicine which may comprise even of one bulk drug by itself or more than one bulk drug. The
definition of 'formulation' is thus very wide and included even one bulk drug where that one bulk
drug by itself is treated as a medicine. It is difficult to uphold the view that the two medicines,
namely, Largactil and Hipnotex, do not fall within the definition of 'formulation' contained in clause
(f) of para 2 of the Order. One of the two difficulties pointed out by the High Court in applying para
21 of the Order to the present case in clearly out of the way.

9. The only surviving question now is whether para 21 of the Order is rendered inapplicable merely
because none of these formulations is specified in any of the categories in the Third Schedule to the
Order. In other words : Is the High Court correct in taking the view that notwithstanding the fixation
of the maximum retail price of these formulations in accordance with the provisions of the Drugs
(Prices Control), Order, 1979, there is no provision made therein to prohibit their sale at an amount
in excess of the maximum retail price fixed under the Order to attract the punishment provided in
Section 7 of the Essential Commodities Act, 1955 ? In our opinion, it is not so. There is no
controversy that by an amendment made in 1987 to which we shall refer later, the matter has been
placed beyond the scope of any argument. However, even prior to that amendment, the matter is
clear by the express provision contained in para 18 as it existed even then.

10. Para 18 clearly says that the provisions of this Order 'other than those contained in paragraphs
10 to 14 (both inclusive)' shall apply to any formulations not specified in Category I, Category II or
Category III of the Third Schedule. It is plain that the provisions of the Order except paragraphs 10
to 14 which have been expressly excluded, are specifically made applicable to formulations which
are not specified in the Third Schedule. It is, therefore, clear that the provisions of para 21 which in
terms are meant to control sale prices of formulations specified in the Third Schedule as also the
other provisions of the Order which in terms may be of limited application are specifically made
applicable to all formulations as defined in the Order except only paragraphs 10 to 14 which have
been expressly excluded. It is by virtue of para 18 that the prohibition contained in para 21 has been
made applicable to formulations not specified in the Third Schedule. This is also the logical view to
take. The contrary view would lead to the conclusion that in spite of the price fixation made for the
formulations not specified in the Third Schedule, there is no prohibition made against its sale for an
amount in excess thereof with the result that the price fixation would be an exercise in futility. The
Drugs (Prices Control) Order, 1987, which has replaced the Drugs (Prices Control) Order, 1979,
contains paras 18 and 21 differently worded to show clearly that such an argument is now not even
available under the 1987 Order.

11. We are clearly of the opinion that the High Court misconstrued the provisions of the Drugs
(Prices Control) Order, 1979, to take the view that none of the aforesaid two medicines, namely,
Largactil and Hipnotex are 'formulation' as defined in Section 2(f) of the Drugs (Prices Control)
Order, 1979; and that the sale of these two medicines for an amount in excess of the maximum retail
price fixed is not punishable under para 21 read with para 18 of the Order.

12. The only question now is of the order we should make in this matter. Shri T.S. Krishnamurthy
Iyer, learned counsel for the respondents very fairly stated that the construction we have made of the
several provisions of the 1979 Order including paras 18 and 21 thereof cannot be seriously disputed.
However, he contended that the respondents had raised several defences none of which has been
considered by the High Court since it acquitted the respondents only on the construction it made of
these provisions. He, therefore, argued that setting aside the High Court's order should not
automatically lead to restoration of conviction and sentence made by the trial court since other
define raised by the respondents remain for consideration. He suggested that in view of the lapse of
several years from the date of the alleged offence and the peculiar facts of this case, we may merely
set aside the High Court's order but not restore the conviction and sentence of the respondents. He
pointed out that the customer to whom the medicines are alleged to have been sold at an excess
price it himself a member of the nursing staff of a hospital and it is unreasonable to take the view
that he would pay Rs. 99 for 15 tablets of Largactil against its retail price of Rs. 9 only, particularly
when he has been purchasing these drugs for a long time. We find merit in the contention of learned
counsel for the respondents and we are inclined to adopted the course suggested by him in the light
of the peculiar facts of his case. In our opinion, it would be inappropriate after the lapse of several
years to sent back the case to the High Court for deciding the remaining defences raised by the
respondents which would further prolong conclusion of the trial. It is also clear that without rejected
the other defences, it is not possible to uphold the conviction and sentence awarded by the trial
court. In such a situation, the course suggested by Shri T.S. Krishnamurthy Iyer, particularly in view
of the stand taken by Shri P. S. Poti on behalf of the appellants, that the appellants are more keen to
know the correct meaning of the provisions of the Order, appears to be the proper course to adopted
in the present case.

13. Consequently, we reject the High Court's construction of the provisions of the 'Order' and hold
that the allegations in the present case, if proved, would amount to a contravention of para 21 read
with para 18 of the Drugs (Prices Control) Order, 1979, which is punishable under Section 7 of the
Essential Commodities Act, 1955. However, for the reasons already given, we do not interfere with
the acquittal of the respondents. The appeal is disposed of accordingly.

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