Union of India v. Ranbaxy Laboratories Ltd. (2008) 7 SCC 502

UNION OF INDIA V. RANBAXY LABORATORIES LTD

ISSUE:

Whether the exemption notification dated 29th August 1995 apply only to drugs manufactured by 31st October 1999, or does it also cover drugs sold after that date?
Whether the manufacturer could be held responsible for the sale price of drugs sold after 31st October 1999, despite the fact that they were manufactured within the exemption period?

RULE:

Doctrine of Purposive Construction: Laws and notifications must be interpreted to fulfill their practical purpose and achieve reasonable objectives. Interpretation should avoid outcomes that are impractical or absurd.
Legislative Intent: The interpreter must assume that the legislature acted in good faith, seeking to achieve reasonable goals. The focus should be on the intent the legislature would have had, had they acted reasonably rather than on their subjective intent.

FACTS:

The first Respondent, a pharmaceutical company, manufactures the bulk drug Pentazocine in the form of an injection branded as ‘Fortwin’.
The sale and marketing of this drug are regulated by the Drugs (Price Control) Order, 1995.
Pentazocine is listed as a scheduled bulk drug at Sl. No.43 in the First Schedule.
The Central Government, under paragraph 23 of the 1995 Order, issued guidelines for granting exemption under paragraph 25. Manufacturers with a price exemption for bulk drugs were required to submit an application for price fixation four months before the exemption period expired.
If a notified price for bulk drug or ceiling price for formulations exists, the manufacturer must follow the set price upon the exemption’s expiry and obtain approval for non-ceiling packs of formulations based on the bulk drug.
Similar provisions apply to exemptions for the New Delivery System, where manufacturers must adhere to the notified price after the exemption expires.
The exemption granted to the first Respondent had expired on 31st October, 1999.
The first Respondent was then asked to show cause as to why an amount of Rs.2,59,76,070/- should not be recovered from it and why action should not be taken under paragraphs 21 and 24 of the 1995 Order read with Section 10 of the Essential Commodities Act, 1955.
The Respondent filed a writ petition in Delhi High Court, which was dismissed by a learned Single Judge.
A Letters Patent Appeal was filed, which was allowed by a Division Bench of the High Court by reason of the impugned judgment.
The High Court ruled that the exemption notification dated 29th August, 1995 applied to drugs manufactured by 31st October, 1999, even if sold after that date.

HELD:

A manufacturer loses control over the drug once it is dispatched to the distributor and cannot oversee its sale through the wholesaler or retailer. Statutes must be interpreted with the object and purpose of the act in mind.
The drug is classified as an essential commodity under the Essential Commodities Act, 1955. Section 3(2)(c) of the said act empowers the Central Government to regulate its price at which the essential commodity may be bought or sold.
Applying the principle of the doctrine of purposive construction, the Court ruled that the exemption must serve its practical purpose. The exemption applied to drugs manufactured by 31st October 1999, even if sold later, as manufacturers cannot control the date of the sale.
The Supreme emphasized that laws must be interpreted pragmatically to avoid absurd outcomes. Penalizing manufacturers for sales after the exemption period would be unfair if the drugs were produced within the exemption period.
The appeal was dismissed, and the High Court’s Decision was upheld.