M/S HEALTH BIOTECH LIMITED v. KARNATAKA STATE MEDI

M/S BANGALORE SURGICAL TRADERS, (A PROPRIETORSHIP FIRM) NO.18/3-4, 4TH MAIN ROAD, SAMPANGIRAMANAGAR, BENGALURU-560027 REPRESENTED BY ITS PROPRIETOR MR. P.SATISH KUMAR. ...PETITIONER (BY SRI. PIYUSH KUMAR JAIN D., ADVOCATE) AND: KARNATAKA STATE MEDICAL SUPPLIES CORPORATION LIMITED (EARLIER KNOWN AS KARNATAKA STATE DRUGS LOGISTICS AND WAREHOUSING SOCIETY) NO.1, DR. SIDDAIAHPURANIK ROAD, MAGADI ROAD, KHB COLONY, BENGALURU-560 079 REPRESENTED BY ITS MANAGING DIRECTOR ...RESPONDENT (BY SMT. SUMANA BALIGA, ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE LIST OF BLACKLISTED FIRM DATED 29.10.2021 ISSUED BY THE RESPONDENT IN SO FAR AS THE PETITIONER FIRM IS CONCERNED VIDE SL.NO.5 UNDER THE YEAR 2021-22 IN RESPECT OF TWO PRODUCTS (a) INJ. NORADRENALINE 2 MG/ML AND (b) INJ. - 3 - NC: 2025:KHC:31178 WP No. 21872 of 2021 C/W WP No. 21782 of 2021 WP No. 21838 of 2021 HC-KAR DOPAMINE HYDROCHLORIDE 40 MG/5ML VIDE ANNEXURE-A. IN WP NO. 21838/2021: BETWEEN: M/S CHARAN ASSOCIATES (A PROPRIETORSHIP FIRM) OFFICE AT C-1, 3RD FLOOR, 20TH MAIN ROAD, V BLOCK, KHB COLONY, KORAMANGALA, BENGALURU-560 095 REPRESENTED BY ITS AUTHORISED SIGNATORY, MR. C.S.SRIDHAR BABU (BY SRI. PIYUSH KUMAR JAIN D., ADVOCATE) AND: KARNATAKA STATE MEDICAL SUPPLIES CORPORATION LIMITED (EARLIER KNOWN AS KARNATAKA STATE DRUGS LOGISTICS AND WAREHOUSING SOCIETY) NO.1, DR. SIDDAIAHPURANIK ROAD, MAGADI ROAD, KHB COLONY, BENGALURU-560 079 REPRESENTED BY ITS MANAGING DIRECTOR ...PETITIONER ...RESPONDENT (BY SMT. SUMANA BALIGA, ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE LIST OF BLACKLISTED FIRM DATED 29.10.2021 ISSUED BY THE RESPONDENT IN SO FAR AS THE PETITIONER FIRM IS CONCERNED VIDE SL.NO.6 UNDER THE YEAR 2021-22 IN RESPECT OF THE PRODUCT OF HAND SANITIZER 500ML VIDE ANNEXURE-A. THESE PETITIONS, COMING ON FOR ORDERS, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: - 4 - NC: 2025:KHC:31178 WP No. 21872 of 2021 C/W WP No. 21782 of 2021 WP No. 21838 of 2021 HC-KAR CORAM: HON'BLE MR. JUSTICE R. NATARAJ ORAL ORDER In these petitions, the petitioners have challenged an order dated 29.10.2021 passed by the respondent blacklisting them.

#2. (i) The facts which are common in all these petitions are that the petitioner in W.P.No.21872/2021 is a manufacturer of pharmaceutical products and it possesses a manufacturing licence. The petitioner in W.P.No.21872/2021 contends that the petitioner in W.P.No.21782/2021 had placed an order for supply of 1,00,000 units of Injection Noradrenaline - 2 mg/ml and for supply of 1,00,000 units of Injection Dopamine Hydrochloride - 40 mg/5 ml. Around the same time, the petitioner in W.P.No.21838/2021 placed an order for supply of 1,00,000 units of Hand Sanitizer of 500 ml per pack. Pursuant thereto, the petitioner in W.P.No.21872/2021 manufactured the products and after testing them for quality, supplied it at the destination mentioned in the purchase orders. The petitioner in W.P.No.21872/2021 was informed that the supplies were made to the respondent by the other petitioners during COVID - 19 - 5 - NC: 2025:KHC:31178 WP No. 21872 of 2021 C/W WP No. 21782 of 2021 WP No. 21838 of 2021 HC-KAR pandemic. The other petitioners claimed that the respondent had placed purchase orders with them for supply of the aforesaid products. (ii) The petitioner in W.P.No.21872/2021 claims that on

29.10.2021, it came to know of the impugned order blacklisting it, which was uploaded on the official website of the respondent in respect of three products namely, (a) Inj. Noradrenaline 2 mg/ml, (b) Inj. Dopamine Hydrochloride 40 mg/5 ml and (c) Hand Sanitizer 500 ml. Likewise, the petitioners in W.P.No.21782/2021 and W.P.No.21838/2021 were also blacklisted. The petitioners are therefore, before this Court challenging the order of blacklisting them.

#3. The petitioner in W.P.No.21872/2021 contends that it had not made any supplies to the respondent directly but it had supplied to M/s Bangalore Surgical Traders (petitioner in W.P.No.21782/2021) and M/s Charan Associates (petitioner in W.P.No.21838/2021). Therefore, it claimed that the respondent could not have blacklisted it. It is further contended that the respondent did not even put the petitioner on notice and did not provide an opportunity to establish its defence. It is also - 6 - NC: 2025:KHC:31178 WP No. 21872 of 2021 C/W WP No. 21782 of 2021 WP No. 21838 of 2021 HC-KAR contended that the basis for treating the drugs supplied by the petitioner as 'not of standard quality', namely the test reports were not furnished to it. Further, it is contended that the order of blacklisting was not communicated to the petitioner but was uploaded on the website of the respondent. It is contended that since the order of blacklisting was without hearing the petitioner and without following the principles of natural justice, the same is liable to be quashed.

#4. (i) The petitioner in W.P.No.21782/2021 contends that against a tender notification issued by the respondent for supply of pharmaceuticals, it had offered to supply the products following which a common purchase order dated 25.03.2020 was issued by the respondent for supply of (a) Inj. Noradrenaline 2ml, (b) Inj. Dopamine Hydrochloride of 1,00,000 each for a total value of Rs.1,69,00,000/- and Rs.29,00,000/- respectively. The petitioner claims that it supplied Inj. Noradrenaline in the following manner: Date of invoice Quantity

17.04.2020

25.04.2020 10,800 89,200 - 7 - NC: 2025:KHC:31178 WP No. 21872 of 2021 C/W WP No. 21782 of 2021 WP No. 21838 of 2021 HC-KAR It also supplied Inj. Dopamine Hydrochloride in the following manner: Date of invoice Quantity

17.04.2020

25.04.2020

09.05.2020 15,750 67,750 16,500 (ii) The petitioner claims that payments in respect of said invoices were received in April and May, 2020. It claims that as per the purchase order, every batch of drugs supplied had to be subject to quality analysis by private empanelled labs and cost of such tests had to be borne by the manufacturer. It is claimed that after the products were supplied, the same were subjected to quality test and after being satisfied about the quality, payments were released to the petitioner. During August 2020, the petitioner received a replacement notice to replace 10,800 units of Inj. Noradrenaline, which were declared as 'not of standard quality'. The respondent though mentioned one batch of supplies made in notice but directed the petitioner to replace the entire quantity of the said batch. Following this, - 8 - NC: 2025:KHC:31178 WP No. 21872 of 2021 C/W WP No. 21782 of 2021 WP No. 21838 of 2021 HC-KAR another replacement notice was issued to replace 46,000 units of Inj. Dopamine Hydrochloride, which was allegedly declared as 'not of standard quality'. In the notice, the respondent mentioned one batch of supplies made but directed the petitioner to replace the entire quantity of the said batch. (iii) The petitioner requested for 'Not of Standard Quality' (NSQ) reports from the respondent, which however, was not furnished. The petitioner claims that it received the NSQ reports from the Department of Drugs Control and took up issue with the manufacturer (Petitioner W.P.No.21872/2021). The manufacturer disputed the findings and claimed that their internal testing reports as well as NABL reports passed the test of quality. The petitioner claims that in order to maintain good relationship with the respondent , it had replaced 46,000 units of Inj. Dopamine Hydrochloride under an invoice dated 20.01.2021. Nonetheless, respondent uploaded an order on its website on 29.10.2021 blacklisting the petitioner during the year 2021-22 in respect of two products namely, (a) Inj. Noradrenaline 2 mg/ml and (b) Inj. Dopamine Hydrochloride 40 mg/5 ml. - 9 - NC: 2025:KHC:31178 WP No. 21872 of 2021 C/W WP No. 21782 of 2021 WP No. 21838 of 2021 HC-KAR

#5. (i) The petitioner in W.P.No.21838/2021 claimed that based on a purchase order issued by the respondent for supply of 1,00,000 units of Hand Sanitizer of 500 ml each, it had procured the manufacturer (Petitioner W.P.No.21872/2021) and had supplied it to the respondent in the following manner. Invoice Warehouse Quantity

07.04.2020 Gulbarga 17,000

15.04.2020 Belgaum 17,000

17.04.2020 Bengaluru - Urban 16,000

17.04.2020 Bengaluru - Urban 16,000

17.04.2020 Dharwad 17,000

18.04.2020 Mysuru 17,000 (ii) The petitioner claims that it received the payments during April 2020 in respect of majority of the supplies made. It contends that the Hand Sanitizers supplied were subject to quality analysis in private empanelled labs and cost of such tests was to be borne by the petitioner. It claimed that after supplies were made at various warehouses, they were subjected to quality test and after being satisfied about the quality, the payments were released. - 10 - NC: 2025:KHC:31178 WP No. 21872 of 2021 C/W WP No. 21782 of 2021 WP No. 21838 of 2021 HC-KAR (iii) The petitioner claims that on 03.05.2021, received a replacement notice dated 16.04.2021 to replace certain quantities of Hand Sanitizer, which were declared as 'not of standard quality'. In the notice though several batches of supplies were mentioned, the petitioner was directed to supply Hand Sanitizer with a unit packing of 180 ml. The petitioner requested for the NSQ report which however, was not furnished to it. Later, the respondent by the impugned order blacklisted the petitioner during the year 2021-22 in respect of Hand Sanitizer 500 ml.

#6. All the petitioners contend that the respondent without following the due process of law and without affording an opportunity to them, had passed the impugned order. The petitioners therefore, contend that the impugned order is liable to be set aside in so far as they are concerned on the above ground. The petitioners also contend that the respondent was bound to furnish the NSQ reports so as to justify the order blacklisting them. However, the same were not furnished to the petitioners. All the petitioners therefore, contend that the impugned order is in violation of principles of natural justice. - 11 - NC: 2025:KHC:31178 WP No. 21872 of 2021 C/W WP No. 21782 of 2021 WP No. 21838 of 2021 HC-KAR

#7. The learned counsel for the petitioners reiterated the above contentions and submitted that the respondent having once paid the value of the supplies made after being satisfied about the quality, cannot now turn around and claim that the supplies were not of standard quality. He therefore, contends that the order impugned in these petitions is liable to be quashed in so far as petitioners are concerned.

#8. (i) Per contra, the respondent has contested these petitions primarily contending that the impugned order blacklisting the petitioners is issued strictly in accordance with Clause 8 of the purchase order and quotation conditions which specifically provided that if any batch of drugs is declared as 'not of standard quality', the petitioners must replace the entire quantity afresh. It therefore, claims that the petitioner cannot now dispute the tender condition which it had accepted voluntarily and acted upon it. It also admitted that separate replacement notices were issued the petitioners W.P.No.21782/2021 and W.P.No.21838/2021. It claimed that the petitioner in W.P.No.21782/2021 replaced Inj. Dopamine Hydrochloride, but failed to replace Inj. Noradrenaline batch - 12 - NC: 2025:KHC:31178 WP No. 21872 of 2021 C/W WP No. 21782 of 2021 WP No. 21838 of 2021 HC-KAR despite several notices. It therefore, contended that the petitioner in W.P.No.21782/2021 was blacklisted. It is claimed the petitioner cannot dispute the valid statutory declaration by the Government Analyst under Section 25(1) of the Drugs and Cosmetic Act, 1940, unless the petitioner challenge it before the Central Drug Laboratory at Kolkata. It also claimed that the petitioners was issued repeated notices to replace the drugs which were not of standard quality, but were of no avail. (ii) The respondent contends that these drugs were critical to treating COVID -19 emergency cases and therefore, the petitioners were required to be vigilant while supplying such critical drugs. It contended that the order of blacklisting was notified on 25.10.2021 and thereafter uploaded on the website. Therefore, it is contended that the impugned order blacklisting the petitioner is just and proper. It has also contended that the petitioner in W.P.No.21838/2021 was also informed to replace the Hand Sanitizers and since it failed to do so, the impugned order was issued blacklisting it. - 13 - NC: 2025:KHC:31178 WP No. 21872 of 2021 C/W WP No. 21782 of 2021 WP No. 21838 of 2021 HC-KAR

#9. Learned counsel for the respondent reiterated the above contentions and submitted that the situation during COVID - 19 was extremely sensitive and dynamic and every day during the pandemic posed serious challenges. She contended that the petitioners who were required to supply quality drugs had supplied drugs which were not of standard quality. She therefore, contends that the impugned order blacklisting the petitioners was justified and no interference is warranted.

#10. I have considered the submissions of the learned counsel for the petitioners as well as the learned counsel for the respondent.

#11. The petitioner in W.P.No.21872/2021 manufacturer of the incriminating drugs and hand sanitizers. The petitioners in other two petitions have procured them from the petitioner in W.P.No.21872/2021 and supplied to the respondent. The supplies so made were accepted and payments were released. It is therefore, more than apparent that the respondent was satisfied about the quality of drugs supplied. However, this Court cannot ignore the fact that these - 14 - NC: 2025:KHC:31178 WP No. 21872 of 2021 C/W WP No. 21782 of 2021 WP No. 21838 of 2021 HC-KAR supplies were made during the COVID-19 pandemic. Be that as it may, if the respondent desires to blacklist any of the petitioners, it is bound to follow the due process of law namely, by putting the petitioners on notice, furnishing the NSQ reports and permit the petitioners to file objections, if any and thereafter, hear them and pass an appropriate order. In the instant case, the respondent has highly relied upon the report of the Government Analyst to hold that the drugs supplied by the petitioners were not of standard quality. However, this report was not furnished to the petitioners. Therefore, the respondent could not have passed an unilateral order blacklisting the petitioners. It was incumbent upon the respondent to follow the due process of law and in this regard, it is profitable to refer to the judgment of the Hon'ble Apex Court in State of Odisha and others vs. Panda Infraproject Limited [(2022) 4 SCC 393].

#12. In view of the above, following order is passed: ORDER (i) These petitions are allowed in part. - 15 - NC: 2025:KHC:31178 WP No. 21872 of 2021 C/W WP No. 21782 of 2021 WP No. 21838 of 2021 HC-KAR (ii) The impugned order dated 29.10.2021 passed by the respondent blacklisting the petitioners is quashed. (iii) The cases are remitted back to the respondent who shall issue notice to the petitioners along with the necessary documents so as to enable the petitioners to furnish their defence and after hearing the petitioners, the respondent may pass appropriate order in accordance with law.

#13. In view of disposal of the petitions, pending I.As., if any, do not survive for consideration and the same stand disposed off. Sd/- (R. NATARAJ) JUDGE PMR List No.: 1 Sl No.: 12