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M/S. Sagar Medical Hall And Others v. State Of Bihar And Others

Patna High Court

Dec 7, 2001

Judgment

Subsequent
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Factual and Procedural Background

Multiple writ applications were filed seeking grant or renewal of licences to sell drugs under Rule 59(2) of the Drugs and Cosmetics Rules, 1945 (one petitioner sought renewal). Applications were submitted in the prescribed form to the Regional Licensing Authority, the competent authority to grant such licences. On 3-4-2001 the State Government issued a communication to all Regional Licensing Authorities instructing them not to issue any licence for wholesale and retail sale of drugs. Acting on that communication, the Regional Licensing Authority informed the petitioners that licences could not be issued. The petitioners challenged the State Government's decision by seeking quashing of the communication and a writ of mandamus directing the respondents to consider and grant/renew licences in accordance with law. The writ applications raising common questions of law and fact were disposed of by a common order.

Legal Issues Presented

Whether a temporary policy decision by the State Government prohibiting the grant of wholesale and retail drug licences can lawfully override the statutory scheme and conditions provided by the Drugs and Cosmetics Rules, 1945 (in particular Rule 59(2) and Rule 64) governing grant and renewal of licences.
Whether the licensing authority may refuse to grant or renew licences on a ground other than those expressly provided for in the Rules (i.e., whether administrative policy choice about number of shops suffices to refuse/decline licences).

Arguments of the Parties

Petitioners' Arguments

The grant or renewal of licences is governed by the Drugs and Cosmetics Act, 1940 and the Rules made thereunder; petitioners applied in conformity with the statutory requirements.
Licence cannot be refused or renewal declined on the basis of a State Government policy decision prohibiting issuance of drug licences because the Act and Rules prescribe the criteria for grant/renewal.

Respondents' Arguments

The ban on issuance of wholesale and retail drug licences was a temporary measure taken in larger public interest because there are already about 26,000 retail drug shops in the State considered adequate to meet public needs.
Rapid, unchecked growth ("mushroom growth") of drug shops reduced turnovers, made many shops unable to meet establishment costs, and allegedly led to selling of spurious drugs detrimental to public health.
In the larger public interest, reasonable restrictions may be imposed on trade and business; such restriction is available to the State under Article 19(1)(g) of the Constitution.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court began with the statutory framework: the Drugs and Cosmetics Act, 1940 and the Rules made thereunder govern grant and renewal of drug licences. The court set out Rule 59(2) (application for grant/renewal) and Rule 64 (conditions to be satisfied before a licence is granted or renewed), including the detailed requirements and provisos (premises adequacy, storage, competent person in charge, size requirements, and appeal mechanism).

From a plain reading of Rule 64 the court concluded that the licensing authority must be satisfied only about the specific conditions enumerated in the Rules (adequacy of premises, proper storage accommodation, competent supervisory person, and related criteria). The Rules themselves prescribe the grounds on which a licence may be granted or refused; there is no provision in the Rules allowing refusal or denial of renewal for reasons outside those provisions, such as a policy determination by the State about sufficiency of the number of drug shops.

The court rejected the respondents' contention that the State's temporary ban could override the statutory scheme. It reasoned that when grant or renewal of a licence is governed by a statutory rule, executive or policy decisions by the State Government cannot supplant or override the conditions expressly set out in those rules. The State's policy decision of 3-4-2001, which prohibited grant/renewal of licences because the State considered existing shops sufficient, was therefore impermissible.

On the facts, the court found the respondents' rationale unpersuasive. The court observed that growth of drug shops may reflect increased public demand due to greater health consciousness and access; if some shops sell spurious drugs, the proper response is regulatory enforcement by the State's departments rather than a blanket prohibition on issuing licences. The court characterized the State's approach as a response to administrative inefficiency (an attempt to cure regulatory failures by denying licences) and held that such a device to refuse licences is not legally permissible.

Consequently, the court quashed the State Government decision dated 3-4-2001. Because the only ground on which the petitioners' applications were refused was the now-quashed State decision, the court directed the licensing authority to consider the petitioners' applications for grant/renewal of licences in accordance with law and the Rules, ignoring the State Government's communication. The court expressly clarified that it did not decide whether the petitioners were otherwise entitled to licences under the statutory criteria.

Holding and Implications

The State Government decision dated 3-4-2001 is quashed and the writ applications are allowed.

Implications and direct consequences:

The Regional Licensing Authority is directed to consider the petitioners' applications for grant or renewal of licences in accordance with the Drugs and Cosmetics Act, 1940 and the Rules made thereunder, disregarding the State Government communication of 3-4-2001.
The court did not decide on the substantive entitlement of the petitioners to licences under the statutory criteria; it remitted consideration to the licensing authority to determine compliance with the Rules.
There shall be no order as to costs.

The opinion does not discuss any broader precedent-setting implications; it addresses the direct effect on these parties and quashes the impugned administrative policy insofar as it attempted to override the statutory scheme.

Applications allowed.

Show all summary ...

1. In all these writ applications, common question of law and fact arise and as such, they are being disposed of by this common order.

2. Facts lie in a very narrow compass. Petitioners excepting petitioner in C.W.J.C No. 11557 of 2001 (Ramji Lal Sagarmal v. State of Bihar), filed applications for grant of licence to sell drugs as provided under Rule 59(2) of the Drugs and Cosmetics Rules, 1945. Petitioner in C.W.J.C No. 11557 of 2001, however, filed application for renewal of the licence under the said Rule. Applications were filed in the prescribed form before the Regional Licensing Authority, i.e the authority competent to grant licence. The State Government, by its communication dated 3-4-2001 addressed to all the Regional Licensing Authorities, has informed them not to issue any licence for wholesale and retail sale of the drugs. In pursuance of the aforesaid decision of the State Government Regional Licensing Authority informed the petitioners that in view of the decision of the State Government, prohibiting grant of drug licence, same cannot be issued. As the aforesaid decision of the State Government dated 3-4-2001 has created impediment in the way of the petitioners for grant/renewal of licence, they pray that the same may be quashed and a writ of mandamu be issued to the respondents to consider and grant/renew the licence.

3. It is the stand of the petitioners that grant or renewal of licence is governed by the provisions of the Drugs and Cosmetics Act, 1940 and the Rules made thereunder (hereinafter referred to as the Act and Rules respectively) and the petitioners having applied in terms of the requirements of the Act and Rules, licence cannot be refused or renewal cannot be declined on the ground, that by virtue of policy decision of the State Government, issuance of drug licence has been prohibited. Stand of the respondents, however, is that ban on issuance of wholesale and retail drug licence has been made as a temporary measure and the reason behind that is that there are about 26000 retail drug shops which are adequate to meet the need of the public. Their further stand is that due to mushroom growth of drugs-shops, the turnover of the shops have gone down and many of them are not in a position to meet the establishment cost, which has resulted into sell of spurious drugs which is dangerous and injurious to public health. It is their further stand that in larger public interest, reasonable restriction can be imposed on freedom of trade business and this right is available to the State Government under Article 19(1)(g) of the Constitution of India.

4. It is common ground that the grant and refusal of drug licence, is governed by the Act and the Rules. Part IV of the Rules provides for sell of drugs other than Homeopathic medicines. Rule 59(2) of the Rules, inter alia, provides for application for the grant or renewal of licence to sell, stock exhibit or offer for sell or distribute drugs to the licensing authority. Rule 64, inter alia, provides for conditions to be satisfied before a licence is granted or renewed. Rule 64 which is relevant for the purpose, reads as follows:

“64. Conditions to be satisfied before a licence in Form 20, 20B, 20G, 21 or 21B is granted or renewed—

(1) A licence in Form 20, 20B, 20F, 20G, 21 or 21B to sell, stock, exhibit or offer for sale or distribute drugs shall not be granted or renewed to any person unless the authority empowered to grant the licence is satisfied that the premises in respect of which the licence is to be granted or renewed are, adequate, equipped with proper storage accommodation for preserving the properties of the drugs to which the licence applies and are in charge of a person competent in the opinion of the licensing authority to supervise preservation of drugs;

Provided that in the case of a pharmacy a licence in Form 20 or 21 shall not be granted or renewed unless the licensing authority is satisfied that the requirements prescribed for a pharmacy in Schedule N have been complied with;

Provided further that licence in Form 20F shall be granted or renewed only to a pharmacy and in areas where a pharmacy is not operating, such licence may be granted or renewed to a chemist and druggist.

Explanation.— For the purpose of this rule, the term ‘pharmacy’ shall be held to mean and include every store or shop or other place, (1) where drugs are dispensed, that is, measured or weighed or make up and supplied, or (2) where prescriptions are compounded; or (3) where drugs are prepared; or (4) which has upon it or displayed within it, or affixed to or used in connection with it, a sign bearing the word or words “pharmacy”, “pharmacist”, “Dispensing Chemist”, or “Pharmaceutical Chemist”, or (5) which, by sign, symbol or indication within or upon it gives the impression that the operations mentioned at (1), (2) and (3) are carried out in the premises; or (6) which is advertised in terms referred to in (4) above.

(2) In granting or renewing a licence under sub-rule (1) the authority empowered to grant it shall have regard—

(i) to the average number of licences granted or renewed during the period of 3 years immediately preceding; and

(ii) to the occupation, trade or business ordinarily carried on by such applicant during the period aforesaid:

Provided that the licensing authority may refuse to grant or renew a licence to any applicant or licensee in respect of whom it is satisfied that by reason of his conviction of an offence under the Act or these rules, or the previous cancellation or, suspension of any licence granted or renewed thereunder, he is not a fit person to whom licence should be granted or renewed under this rule. Every such order shall be communicated to the licensee as soon as possible.

Provided further that in respect of an application for the grant of a licence in Form 20-B or Form 21-B or both, the licensing authority shall satisfy himself that the premises in respect of which a wholesale licence is to be granted or renewed are—

(i) of an area of not less than ten square meters; and

(ii) in the charge of a competent person, who—

(a) is a Registered Pharmacist, or;

(b) has passed the matriculation examination or its equivalent examination from a recognised Board with four years' experience in dealing with sale of drugs, or

Provided also that—

(i) in respect of an application for the grant of a licence in Form 20 or Form 21 or both, the licensing authority shall satisfy itself that the premises are on an area of not less than 10 square meters; and

(ii) in respect of an application for the grant of a licence—

(a) in Form 20 or Form 21 or both, and

(b) in Form 20-B or Form 21-B or both,

the licensing authority shall satisfy itself that the premises are of an area not less than 15 square meters:

Provided also that the provisions of the preceding proviso shall not apply to the premises for which licences have been issued by the licensing authority before the commencement of the Drugs and Cosmetics (1st Amendment) Rules, 1977.

(3) Any person who is aggrieved by the order passed by the licensing authority in sub-rule (1) may, within 30 days from the date of such order, appeal to the State Government and the State Government may, after such enquiry into the matter as it considers necessary and after giving the appellant and opportunity for representing his view in the matter, make such order in relation thereto as it thinks fit.”

5. From a plain reading of the aforesaid rule, it is manifest that before the grant of licence or its renewal, the authority empowered to grant the licence or to renew is, to be satisfied that the premises in respect of which the licence is to be granted or renewed, are adequate, equipped with proper storage accommodation for preserving properties of drugs to which the licence applies and are in charge of a person competent to supervise and control the sale, distribution and preservation of drugs. Thus, the conditions which are required to be satisfied for grant of licence or its renewal is provided under the Rules itself. The Rules nowhere confer on the licensing authority the power to refuse or renew the licences, on the ground other than what has been provided therein. Here in the present case, grant and renewal of licence has been refused only on the ground that as a matter of policy, the State Government has temporarily decided not to grant licence on the ground that number of shops available in the State is sufficient to meet the demand of the public.

6. As stated earlier, the grant and renewal of drug licence is governed by the Rules and it nowhere provides that the licence can be declined or renewal can be refused on the ground that in the opinion of the State Government, the number of shops are sufficient to meet the demand of the public. I am of the opinion that when grant or renewal of licence is governed by the statutory rule, decision of such a question has to be governed by the provisions of the Rules and executive decision taken by the State Government, cannot override the same. Here in the present case, conditions for grant and renewal of licence have been provided under the Rules but the decision taken by the State Government overrides the same. In my opinion, same is also not, permissible.

7. On fact also, I am not impressed by the stand taken by the State. On account of literacy on health, education as also the people becoming health conscious, they need drugs and for that drug shops are necessary. Growth of drug shops is to cater to the needs of demanding public. Even if I accept the stand of the respondents that many of drug shops are not in a position to meet the establishment cost, they do so at their own risk. In case, to generate, profit, they attempt to sell spurious drugs, there is entire department of the State which is available to control that. Inefficiency in their part to control such menace, if at all, shall not entitle the respondents to stop the grant or renewal of licence altogether. I am reminded of a story in which, when a king found that there were large number of thefts committed in his Kingdom, he ordered that no citizen shall come out of their houses. This is precisely the stand of the respondents in the present case. In case, the respondents apprehends sell of spurious drugs because of large number of shops, they must tighten their belt and devise ways and means to stop the same. In sum and substance, the plea of the respondents is plea of inefficiency. In my opinion, this novel devise of refusing to grant licence or renew the same being not permissible in law, cannot be sustained. For the reasons stated, the decision of the State Government dated 3-4-2001, is quashed.

8. As the grant of licence and the renewal have been refused to the petitioners only on the ground or the decision of the State Government which has been set at naught, I direct the licensing authority to consider the applications fired by the petitioners for grant/renewal of licence in accordance with law, ignoring the decision of the State Government referred to above. It is made clear that I have not gone into the question as to whether petitioners, otherwise, are entitled for grant or renewal of the licence.

9. In the result, the applications are allowed in the terms indicated above. In the facts and circumstances of the case, there shall be no order as to costs.