M/S Sujal Pharma vs. Karnataka State Medical Supplies Corporation Limited

Facts

The petitioner, M/s. Sujal Pharma, a proprietorship firm, was blacklisted by the respondent, Karnataka State Medical Supplies Corporation Limited, on 29.10.2021. This action stemmed from the supply of Hand Sanitizers manufactured by M/s Glint Cosmetics Private Limited, pursuant to a purchase order issued by the respondent on 25.03.2020 for 10,000 units at Rs. 2500/- per unit, totaling Rs. 2.5 crores. The petitioner supplied the product on 06.04.2020 and 29.04.2020. Subsequently, on 16.04.2021 and 12.07.2021, the petitioner received replacement notices alleging the Hand Sanitizers were not of standard quality. The petitioner requested reports supporting these claims, but instead received the blacklisting order. The petitioner argues that no prior notice or opportunity to be heard was given before blacklisting.

Held

The Court held that the blacklisting order dated 29.10.2021, issued by the respondent against the petitioner, is unsustainable in law. The Court found that the principles of natural justice were violated as no opportunity of hearing was afforded to the petitioner prior to the blacklisting. The replacement notices issued by the respondent did not indicate that the petitioner's firm would be blacklisted. The Court emphasized that an order of blacklisting has significant economic and civil consequences and thus cannot be passed without adhering to the principles of natural justice. Relying on the Apex Court's judgments in Erusian Equipment and Chemicals Limited v. State of West Bengal, Vetindia Pharmaceuticals Limited v. State of Uttar Pradesh, and Daffodils Pharmaceuticals Limited v. State of U.P., the Court noted that while the blacklisting order is unsustainable, due to the significant passage of time (approximately four years since the supply and over three years since the blacklisting order), remanding the matter back to the respondent for compliance with natural justice would not be an appropriate remedy. The Court reasoned that the Hand Sanitizers supplied would have naturally 'dried up' by efflux of time, and the delay in approaching the court, though significant, was considered in the context of the nature of the dispute and the disproportionate nature of the blacklisting order after such a long period. Consequently, the Court quashed the blacklisting order concerning the petitioner.

Key Issues

1. Whether the blacklisting order dated 29.10.2021, issued by the respondent against the petitioner, is sustainable in law without affording an opportunity of hearing to the petitioner, thereby violating the principles of natural justice? The petitioner contends that the blacklisting order was passed without any prior notice or opportunity to present their case, making it unsustainable. They argue that the replacement notices did not indicate potential blacklisting and that the reports from the Drugs Control Department, which formed the basis for the quality concerns, were not furnished. The petitioner relies on the principle that orders entailing civil consequences must adhere to natural justice. The respondent argues that the issuance of two replacement notices, indicating poor quality of Hand Sanitizers, was sufficient and that the petitioner, as a distributor, is equally liable. They also contend that the manufacturer of the Hand Sanitizers was also blacklisted and has not challenged it, therefore, the petitioner cannot challenge the action. The respondent seeks dismissal of the petition.