Obligation To Furnish Drug Analysis Reports Lies With Drug Inspectorate, Not KSMSCL: Karnataka High Court Upholds Blacklisting Of Pharma Company
The High Court further held that compliance with the debarment procedure under Rule 26A of the Karnataka Transparency in Public Procurements Rules was not mandatory where the action was taken under a contractual blacklisting clause contained in the tender conditions.
Justice Suraj Govindaraj, Karnataka High Court
The Karnataka High Court has upheld an order blacklisting a pharmaceutical company for three years after batches of drugs supplied by it were reported as “Not of Standard Quality” during laboratory testing.
The Court rejected the company's challenge, founded on alleged non-furnishing of the Government Analyst's report and statutory sample portions, holding that any such obligation rested upon the Drug Inspectorate and not KSMSCL, which was merely the procurement entity acting upon a valid statutory report.
The Court was hearing a writ petition challenging an order passed by Karnataka State Medical Supplies Corporation Limited (KSMSCL) blacklisting a pharmaceutical product under Clause 21.1(g) of the tender conditions after laboratory testing allegedly revealed quality failure.
The petitioner contended that the action was illegal for non-compliance with Rule 26A of the Karnataka Transparency in Public Procurements Rules, violation of natural justice, non-furnishing of the Government Analyst's report and denial of an oral hearing.
A Bench of Justice Suraj Govindaraj observed: “… the respondent is a distinct entity from the Drug Inspectorate. The respondent is the procurement entity, Karnataka State Medical Supplies Corporation Limited (KSMSCL). The Drug Inspectorate is a separate statutory authority. The obligation to furnish the report and sample portions under the Drugs and Cosmetics Act, 1940 is the obligation of the Drug Inspectorate, not the respondent. Any failure on the part of the Drug Inspectorate to comply with its statutory obligations is a grievance to be addressed against the Drug Inspectorate, not against the respondent.”
Advocate Piyush Kumar Jain appeared for the petitioner, while Advocate Sumana Baliga M. appeared for the respondent.
Background
KSMSCL floated a tender for the procurement of iron and folic acid tablets. The petitioner participated in the tender process and was declared a successful bidder. The supplied drugs were accompanied by quality-control reports and test certificates. Upon receipt, samples were subjected to testing through the Drug Inspectorate and were subsequently reported as “Not of Standard Quality” (NSQ). Based on the Government Analyst's report, KSMSCL issued replacement notices calling upon the petitioner to replace the affected drug batches.
The petitioner responded by contending that neither the Government Analyst's report nor the statutory sample portions had been furnished to it by the Drug Inspectorate. It asserted that the statutory procedure prescribed under the Drugs and Cosmetics Act had not been followed and that such non-compliance deprived it of the right to challenge the report or seek re-analysis. The petitioner, therefore, requested that the replacement notices be kept in abeyance and opposed further action.
KSMSCL thereafter issued a show-cause notice proposing blacklisting under Clause 21.1(g) of the tender conditions. After considering the petitioner's reply, the respondent passed the impugned order blacklisting the petitioner for three years, leading to the present writ petition.
Court's Observations
The Court first considered the petitioner's principal contention that the impugned action was required to comply with Rule 26A of the Karnataka Transparency in Public Procurements Rules, including the constitution of a Debarment Committee and grant of an oral hearing.
Rejecting the contention, the Court held that Rule 26A and Clause 21.1(g) operate in different fields. While Rule 26A governs debarment for corrupt or fraudulent practices affecting procurement, Clause 21.1(g) independently authorises blacklisting in cases of quality failure detected during laboratory testing of supplied products. The impugned action was therefore contractual in nature and not a statutory debarment under Rule 26A.
The Bench held: “This Court finds that the impugned order dated 28.03.2025 is an order of blacklisting passed in exercise of the contractual powers reserved under Clause 21.1(g) of the tender conditions. It is not an order of debarment under Rule 26A of the KTPP Rules. The petitioner's submissions to the contrary are rejected.”
The Court further held: “It is therefore held that the procedure under Rule 26A, specifically the constitution of a Debarment Committee and obtaining its recommendations, was not mandatory for the action taken under Clause 21.1(g).”
Having held that Rule 26A was inapplicable, the Court clarified that contractual blacklisting cannot be imposed arbitrarily. The principles of natural justice continue to apply whenever the action results in serious civil consequences.
The Court observed: “However, the absence of mandatory compliance with the Rule 26A procedure does not mean that the respondent was entitled to act without any procedure at all. Even where action is contractual, the principles of natural justice apply when the action results in significant civil consequences.”
The Bench examined the factual record and found that the petitioner had received replacement notices, a specific show-cause notice proposing blacklisting, and had submitted detailed replies raising all available objections. The Court concluded that the petitioner had been afforded a reasonable opportunity to place its defence on record and could not claim surprise or procedural unfairness.
The High Court rejected the petitioner's argument that KSMSCL could not proceed with blacklisting until the Government Analyst's report and statutory sample portions were furnished.
The Court drew a clear distinction between the role of KSMSCL as a procurement agency and the Drug Inspectorate as the statutory authority under the Drugs and Cosmetics Act. According to the Court, any statutory obligation concerning the furnishing of reports or sample portions was cast upon the Drug Inspectorate and not KSMSCL.
The Bench further observed: “Second, the respondent received the Government Analyst's report from the competent authority. The report carries a statutory presumption of correctness. Unless and until it is set aside by a competent forum, the respondent is entitled to act upon it in the exercise of its contractual rights. The respondent cannot be expected to stay its hand indefinitely merely because the petitioner expresses an intention to challenge the report someday.”
The Court also noted that despite repeatedly alleging non-furnishing of the report and sample portions, the petitioner had not initiated any proceedings under the Drugs and Cosmetics Act to challenge the Government Analyst's findings.
The Bench observed: “Third, this Court notes a vital fact: despite repeatedly raising the issue of non-furnishing of the report and sample portions, the petitioner has not initiated any proceedings under the Drugs and Cosmetics Act, 1940, to challenge the Government Analyst's report. This fact supports the respondent's submission that the objection is a defensive tactic and not a genuine grievance.”
The Court held that the petitioner could not indefinitely resist contractual consequences merely by asserting a future intention to challenge the report while taking no concrete steps under the statutory framework.
The Court found that the petitioner had clear contractual options available upon receipt of the replacement notices. Even while disputing the Government Analyst's findings, the petitioner could have replaced the drugs under protest and simultaneously pursued remedies available under the Drugs and Cosmetics Act.
The Court observed: “The petitioner had a clear contractual option to replace the drugs upon receiving the replacement notices. Even if it disagreed with the Government Analyst's finding, it could have replaced the drugs under protest and simultaneously challenged the report through appropriate legal proceedings. It chose neither to replace the drugs nor to formally challenge the report.”
According to the Court, this conduct undermined the petitioner's claim that it had been left without any meaningful remedy.
The Court further noted that the tender conditions specifically recognised the supply of NSQ drugs as a ground for blacklisting. The respondent was therefore not relying upon any extra-contractual source of power but was merely enforcing contractual obligations that the petitioner had voluntarily accepted while participating in the tender process.
Conclusion
Finding that the petitioner had been afforded adequate opportunity to respond to the allegations and that the impugned order did not suffer from arbitrariness, disproportionality, procedural impropriety or any other infirmity warranting interference under Article 226 of the Constitution, the Court dismissed the writ petition while clarifying that the petitioner remained free to pursue statutory remedies available under the Drugs and Cosmetics Act, including challenging the Government Analyst's report before the competent authority.
Cause Title: Biogenetic Drugs Private Limited v. Karnataka State Medical Supplies Corporation Limited (Neutral Citation: 2026:KHC:27591)
