Medihauxe Pharma Private Limited vs. The State Of Andhra Pradesh

Held

The Court allowed the writ petition in part, setting aside the impugned Memo R.c.No.1577546/SM/ DIMS/2022. The Court held that the action of Respondent No. 2 in suspending payments for the Rate Contract purchase orders was illegal and arbitrary. The Court found that the audit objections cited by Respondent No. 2 were not supported by any established procedure, specific rule, or the terms of the Rate Contract for the period 2016-2019. The Court noted that the contract merely stated that 'payment may be made directly to the firm,' which could not be construed as 'payment should only be made directly to the firm.' Furthermore, the Court observed that the practice of paying authorized distributors upon furnishing authorization letters was not denied, and the RC firms' consent for payment to the petitioner was not disputed. The Court also acknowledged that the audit inspection report was an intermittent document and not a final report. Regarding the non-Rate Contract purchase orders, the Court held that ordering payment would be subject to the outcome of the ongoing investigation into a registered criminal case (Cr.No.03/RCO-CIU-ACB/2020). The Court found the writ petition maintainable as it questioned the legality of the impugned memo and sought directions for payment. The Court directed Respondent No. 2 to release the pending payment in respect of the Rate Contract Purchase orders within three weeks.

Facts

The petitioner, a pharma distributor, sought a writ of mandamus to declare the suspension of payment for 91 invoices totaling Rs. 2,68,12,577/- illegal and arbitrary. These invoices pertained to supplies made between 2016 and 2019 under a State Insurance Medical Services rate contract. The respondent No. 2 (Director of Insurance Medical Services) issued a memo on 01.12.2021, stopping payments based on AG audit objections, stating that payments should be made directly to Rate Contract (RC) firms and not distributors, and that invoices were not issued by the RC firms. The petitioner argued that the rate contract terms did not prohibit payments to authorized distributors and that the impugned memo was issued without proper justification, referencing communications that predated the petitioner's invoices. The respondent contended that the matter involved contractual disputes requiring civil adjudication, making the writ petition not maintainable. The respondent also highlighted an ongoing investigation into a scam related to non-Rate Contract purchase orders.

Key Issues

1. Whether the action of Respondent No. 2 in suspending payment for 91 invoices, based on Memo R.C.No.1577546/CPS/2021 dated 01.12.2021, is illegal, arbitrary, and violative of natural justice, particularly concerning supplies made under Rate Contract (RC) purchase orders. 2. Whether the audit objections cited by Respondent No. 2, which led to the suspension of payments to the petitioner as an authorized distributor, are legally tenable and supported by the terms of the Rate Contract. 3. Whether the Writ Petition is maintainable for directing the release of pending payments and for questioning the legality of the impugned memo. Petitioner's Arguments: The petitioner argued that the impugned memo was illegal and arbitrary as the Rate Contract terms for 2016-2019 did not prohibit payments to authorized distributors. They contended that the AG audit observations were vague and not backed by specific rules or the contract. The petitioner also argued that the memo was issued based on an intermittent audit document, not a final report, and that the RC firms had consented to payments being made to the petitioner. They asserted the writ petition was maintainable as it questioned the arbitrary action of the respondent. Respondent's Arguments: The respondent argued that the writ petition involved factual adjudication of contractual obligations and payment disputes, making it not maintainable under Article 226. They contended that payments should be made directly to RC firms as per audit observations and guidelines, and that the petitioner should approach a civil court. Regarding non-Rate Contract purchase orders, the respondent pointed to an ongoing investigation into a financial scam.