IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 33949 of 2010(P)
1. SURESH LAL.R., MANAGING PARTNER
... Petitioner
Vs
1. THE DRUGS CONTROLLER OF KERALA
... Respondent
2. ASSISTANT DRUGS CONTROLLER
3. M/S.J.B.CHEMICALS & PHARMACEUTICALS LTD.
For Petitioner :SRI.P.RAVINDRAN (SR.)
For Respondent :SRI.PREMJIT NAGENDRAN
The Hon'ble MR. Justice ANTONY DOMINIC
Dated :21/01/2011
O R D E R
'C.R.'
ANTONY DOMINIC, J.
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W.P.(C) Nos.33949, 35655, 36260 & 37014 of 2010
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Dated this the 21st day of January, 2011
J U D G M E N T
The issues raised in these writ petitions are
common and, therefore, these cases were heard together
and are disposed of by this common judgment. For
convenience, W.P.(C) No.33949/2010 is adopted as the
leading case.
2. Petitioner is a wholesale dealer in drugs, who has
obtained Ext.P1 licence issued under Rule 61 of the Drugs
and Cosmetics Rules, 1945. The third respondent is a
manufacturer of medicines, who, by Exts.P2 and P3, has
appointed him as a stockist for Pathanamthitta District.
Ext.P4 sale invoices are produced to show that medicines
have been supplied in the past. Petitioner states that
subsequently, the third respondent discontinued supply of
medicines and Ext.P5 request made to continue the supply
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was not responded. It is stated that complaining of the above,
they made Ext.P6 representation to the second respondent.
Thereupon, they were directed to move the first respondent.
Accordingly, they submitted Exts.P7 and P8 series of
complaints to the first respondent. There was no response to
those complaints and it is in these circumstances, this writ
petition has been filed.
3. Prayer sought in the writ petition is to direct
respondents 1 and 2 to require the third respondent
manufacturer to supply medicines to the petitioner in terms of
the petitioner’s licence as a wholesale dealer. The main
contention raised by the learned senior counsel appearing for
the petitioner is that, under clause 18 of the Drugs (Prices
Control) Order, 1995, manufacturer cannot refuse to sell or
supply medicines to a wholesale dealer. In support of this
contention, learned senior counsel also relied on the
judgments of this Court in W.P.(C) No.6876/2009 and W.P.
(C) No.36675/2009.
W.P.(C) No.33949/2010 & connected cases
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4. The third respondent has filed a counter affidavit, in
which, the third respondent submits that like other
manufacturers, it has its own procedure in the matter of
distribution of medicines and sales not only in Kerala, but
throughout India. It is stated that the company appoints
Clearing and forwarding agents to stock their products,
despatch and invoice the goods to the stockists, collect
payment for the same and deposit the collection in the
company’s account. It is stated that the company does not
have any direct sales outlet in Kerala. It has two clearing and
forwarding agents in Kerala, one for southern districts located
at Ernakulam catering to the requirements of
Thiruvananthapuram to Ernakulam. Similarly, it has another
clearing and forwarding agent who is catering the
requirements of the remaining parts of the State. It is stated
that the stockists avail of their requirements from the clearing
and forwarding agents and that the wholesale dealers availed
of their supply from the stockists. According to the company,
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it is free to regulate its supply and appoint stockists and none
has any right to demand direct supply from the manufacturer
itself. As far as the petitioner’s claim that it is a stockist is
concerned, the company states that it has terminated the
arrangement telephonically.
5. In the reply affidavit filed by the petitioner, he has
reiterated his contention in the writ petition. As far as the
claim of the company of having terminated the stockist
agreement is concerned, that has been denied by the
petitioner.
6. In the light of the contentions raised by both sides,
the only issue that arise for consideration is whether the claim
of the petitioner that in the light of clause 18 of the Control
Order, the company cannot refuse supply to a wholesaler duly
licenced under the Act and the Rules is sustainable or not.
7. Clause 18 of the Drugs (Price Control) Order
issued under the provisions of Section 3 of the Essential
Commodities Act, 1955, reads as under:-
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” 18. Manufacturer, distributor or
dealer not to refuse sale of drug.
Subject to the provisions of the Drugs
and Cosmetics Act, 1940 (23 of 1940) and the
Rules framed thereunder –
(a) no manufacturer or distributor
shall withhold from sale or refuse to sell to a
dealer any drug without good and sufficient
reasons;
(b) no dealer shall withhold from sale
or refuse to sell any drug available with him
to a customer intending to purchase such
drug.”
8. This provision shows that as far as a manufacturer
or distributor is concerned, subject to the provisions of the
Drugs and Cosmetics Act, 1940 and the Rules framed
thereunder, manufacturer or distributor shall not withhold from
sale or refuse to sell to a dealer any drug, without good and
sufficient reasons. The word ‘distributor’ has been defined in
clause 2(e) as a distributor of drugs or his agent or a stockist
appointed by a manufacturer or an importer for stocking his
W.P.(C) No.33949/2010 & connected cases
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drugs for sale to a dealer. Similarly, ‘dealer’ has been defined
under clause 2(d) as a person carrying on the business of
purchase or sale of drugs whether as a wholesaler or retailer
and whether or not in conjunction with any other business and
includes his agent. Similarly, ‘manufacturer’ has been defined
in clause 2(m) as any person who manufactures a drug. The
provision of clause 18(a) of the Control Order prevents a
manufacturer or his distributor from withholding supplies. This
rule makes it clear that the manufacturer has the right to
appoint distributor, the definition of which, includes stockist
also. Further, the Rule provides that a manufacturer or his
stockist shall not withhold from sale or refuse to sell to a
dealer, which expression again includes retail and wholesale
dealers. This obligation of the manufacturer and distributor is
qualified with the words ‘without good and sufficient reasons’.
Therefore, if a manufacturer or distributor has good and
sufficient reasons, they are entitled to refuse sale of their
products to a wholesaler or a retailer. Question is whether a
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commercial arrangement made by a manufacturer amounts to
a good and sufficient reason to refuse supply to a dealer, who
demands supply in violation of such arrangement. I have not
been shown any provision either in the Drugs and Cosmetics
Act or the Essential Commodities Act or in any Rules or
Orders issued under these enactments, which restricts the
right of a manufacturer to channelise his supply to the market
in the manner they consider appropriate. Further, as already
noticed, manufacturer is entitled to appoint stockists also. If
that be so, it has to be recognised that the commercial right of
a manufacturer to appoint distributors or stockists is well
recognised. Consequently, the manufacturer has to be held
entitled to regulate his supply through a distributor or stockist.
If so, refusal of a manufacturer to supply goods directly to a
wholesaler or a retailer for the reason that the supplies are
channelled through a distributor or stockist has to be
recognised as a good and sufficient reason as contemplated
in Clause 18 of the Control Order.
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9. As far as Ext.P10 judgment is concerned, in my
view, this judgment also does not militate against the
aforesaid interpretation of clause 18 of the Control Order.
From Paragraph 7 of Ext.P10 judgment being relevant reads
as under:-
” 7. Clause (2)(1) of the Control
Order defines manufacture and clause (m)
states that ‘manufacturer’ means any person
who manufactures a drug. Clause 2(e)
provides that ‘distributor’ means distributor
of drugs or his agent or a stockist appointed
by a manufacturer or an importer for stocking
his drugs for sale to a dealer. ‘Dealer’
means, in terms of clause 2(d) of the Control
Order, a person carrying on the business of
purchase or sale of drugs, whether as a
wholesaler or retailer and whether or not in
conjunction with any other business, and
includes his agent. With this, adverting to
clause 18, it could be seen that the said
provision enjoins that subject to the
provisions of the D & C Act and the Rules
framed thereunder, no manufacturer or
W.P.(C) No.33949/2010 & connected cases
: 9 :distributor shall withhold from sale or refuse
to sell to a dealer any drug without good and
sufficient reasons. The question raised is as
to whether this obligation is satisfied by the
manufacturer, pointing out different stockists
that it has in terms of its commercial contacts.
8. A close reading of clauses (1) and
(m) would show that manufacturer does not
include a stockist. Manufacturer is one who
carries out the process of manufacture in
terms of clauses 2(1), i.e., in relation to any
drug, carries out any process which
ultimately provide any drug with a view to its
sale and distribution. The process of
distribution by the manufacturer, through any
of its stockists, is not part of the regulations
made through the Control Order issued under
the Essential Commodities Act. ‘Distributor’
in terms of clause 2(e) of the Control Order is
the distributor who is eligible in terms of
clause 18(a) for statutory protection from
being deprived of supply of drugs.
‘Distributor’ as defined in clause 2(e) of the
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Control Order manes a distributor of drugs
or his agent or a stockist appointed by the
manufacturer. Therefore, even if
manufacturer has a stockist, he may be a
distributor in the company. But the
appointment of stockists does not take away
the statutory liability of the manufacturer to
effect supply to satisfy the mandate of clause
18(a), which obliges that a manufacturer
shall not withhold from sale or refuse to sell
to a dealer any drug without good and
sufficient reasons.
9. The petitioners are dealers as
defined in clause 2(d) of the Control Order.
They carry on the business of purchase and
sale of drugs on wholesale basis. They,
therefore, are dealers for the purpose of the
Control Order. If that were so, the
petitioners are entitled to supply of drugs by
the manufacturers. Even if the manufacturer
shows the availability of stockists as good
and sufficient reasons to refuse sale directly
to the petitioners/dealers, the agency
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relationship between the stockists and
manufacturer cannot, in any way, result in
deprivation of the petitioners, who are
dealers, from the entitlement to supply, which
is protected by clause 18 of the Control
Order. Therefore, the petitioners are clearly
entitled to supply of drugs. Otherwise, it
would be in contradiction with clause 18 of
the Control Order except in cases where there
is good and sufficient reasons.
10. The relationship of the stockists
and the manufacturer does not entitle the
manufacturer to refuse supply to the
petitioners. It would, at the most, enable it to
require that the petitioners have to buy from
the stockists with reference to any term of the
commercial deal between the manufacturer
and its stockists, if any. It also needs to be
noted that the requirement to supply the drugs
form part of the statutory duties in terms of
the Control Order which is issued under the
Essential Commodities Act.
11. The Drugs Controller of the
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Government of Kerala is present before Court
today and he has explained the stand of the
department in as much as the Drugs
Controller cannot be made to negotiate
between the manufacturer or its stockists and
the dealers who want the supply. The
possession of licence in terms of the D & C
Act and Rules, which entails a person to be
treated as a dealer for the purpose of the
Control Order, does not ipso facto result in
his being a stockist of the manufacturer. The
appointment of stockists is with the exclusive
commercial domain of the manufacturer and
the Drugs Controller is not liable or entitled
to interfere with that matter in any manner.
At the same time, any failure of the
manufacturer to supply to a dealer in terms of
clause 18 of the Control Order is a matter, on
which, the Drugs Controller would be entitled
to exercise authority and in view of that
clause, he is duty bound to take such action.
However, the manufacturer has necessarily to
be heard as to any sufficient or good reason
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for it for refusing supply to any particular
dealer.
With the aforesaid, these writ petitions
are ordered directing that the official
respondents will act in terms of what is stated
above and would look into complaints of
violations of clause 18 of the Control Order
but shall not, in any manner, interfere with
the contractual obligations of the
manufacturer and stockists or in any manner
deal with the request of any dealer for being
the stockist of any manufacturer. It is
clarified that the supply by the manufacturer
to the dealers will be in terms of their
entitlement as per the statutory provisions.
These writ petitions are ordered
accordingly."
10. A close reading of the aforesaid paragraphs of the
judgment shows that this Court has held,
(1) That the appointment of stockist does not take
away the statutory liability of the manufacturer to effect supply
to satisfy as mandated in clause 18(a) of the Control Order.
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(2) That the existence of stockist would at the most
enable the manufacturer to require that the dealers have to
buy from stockists with reference to any term of commercial
deal between manufacturer and its stockists.
(3) That the appointment of stockists is within the
exclusive commercial domain of the manufacturer and the
Drugs Controller is not entitled to interfere with the same in
any manner.
(4) That the Drugs Controller shall not interfere with
the contractual obligations of the manufacturer and stockist or
in any manner deal with a request of any dealer for being the
stockist of any manufacturer.
11. In my view, the effect of the judgment is that the
manufacturer has the liability to supply directly to a dealer, in
cases where the manufacturer directly supplies the products
to the dealers. This does not mean that the manufacturer is
under an obligation to supply its products to any dealer,
irrespective of the contractual arrangements made by them by
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appointing stockists or distributors. The principles laid down
in this judgment have been followed in the judgment in W.P.
(C) No.36675/2009 also.
12. Now that the scope of clause 18 of the Control
Order has been understood as above, all that is required is
that the first respondent, the Drugs Controller, before whom
Exts.P7, P8, P8(a), P8(b) and P8(c) complaints have been
filed by the petitioner, should take up those complaints with
notice to the parties concerned and decide on the complaints
raised. Such decision shall be taken on the complaints made
by the petitioners as expeditiously as possible and at any rate,
within six weeks from the date of production of a copy of this
judgment.
13. In so far as W.P(C) Nos. 35655, 36260 and 37014
of 2010 are concerned, similar complaints filed before the
Drugs Controller are pending. These complaints shall also be
disposed of, with notice to the parties concerned and within
the time specified above.
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14. Until a decision is taken as above, the interim
orders passed in these writ petitions will continue.
15. Parties shall produce a copy of this judgment and
writ petitions before the Drugs Controller for compliance.
Writ petitions are disposed of as above.
Sd/-
(ANTONY DOMINIC, JUDGE)
aks
// True Copy //
P.A. To Judge