BIOGENETIC DRUGS PRIVATE LIMITED vs KARNATAKA STATE MEDICAL SUPPLIES CORPORATION LIMITED
- Court
- Karnataka High Court
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WP No. 25026 of 2025
®
HC-KAR
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
TH
DATED THIS THE 9 DAY OF JUNE, 2026
BEFORE
THE HON'BLE MR. JUSTICE SURAJ GOVINDARAJ
WRIT PETITION NO. 25026 OF 2025 (GM-TEN)
BETWEEN
BIOGENETIC DRUGS PRIVATE LIMITED
A COMPANY REGISTERED UNDER
THE COMPANIES ACT, 1956
HAVING ITS REGISTERED OFFICE AT
NO.66 MATHUR VAISHYA NAGAR, TONK ROAD,
JAIPUR-302 011
REPRESENTED BY ITS AUTHORISED REPRESENTATIVE
MR. PUSHKAR DEO.
... PETITIONER
(BY SRI. PIYUSH KUMAR JAIN.D., ADVOCATE)
AND
KARNATAKA STATE MEDICAL SUPPLIES CORPORATION LIMITED
A COMPANY REGISTERED UNDER THE COMPANIES ACT, 2013
HAVING ITS REGISTERED OFFICE AT
NO. 1. DR. SIDDAIAH PURANIK ROAD,
KHB COLONY, MAGADI ROAD,
BENGALURU-560 079
REPRESENTED BY ITS MANAGING DIRECTOR,
…. RESPONDENT
(BY SMT. SUMANA BALIGA M., ADVOCATE)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 & 227
OF THE CONSTITUTION OF INDIA PRAYING TO ISSUE A WRIT OF
CERTIORARI TO QUASH THE ORDER OF BLACKLISTING DATED
MARCH 28, 2025, PASSED BY THE RESPONDENT WHEREBY THE
RESPONDENT BLACKLISTED 20.1.20 FERROUS SALTS(A) + FOLIC
ACID (B) 45 MG ELEMENTAL IRON (A)+ 400 MCG (B) PINK TABLET
45MG + 400MCG 1X10X10 (FOR BREVITY, DRUG ) MANUFACTURED
Digitally signed
by SHWETHA
RAGHAVENDRA
Location: HIGH
COURT OF
KARNATAKA
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AND SUPPLIED BY THE PETITIONER HEREIN, FOR A PERIOD OF 3
YEARS, VIDE ORDER DATED MARCH 28, 2025 ( IMPUGNED ORDER ),
VIDE ANNEXURE-A AND ETC.
THIS WRIT PETITION COMING ON FOR ORDERS AND HAVING
BEEN RESERVED FOR ORDERS ON 01.06.2026, THIS DAY, THE
COURT PRONOUNCED THE FOLLOWING:
CORAM: HON'BLE MR. JUSTICE SURAJ GOVINDARAJ
CAV ORDER
1. Petitioner is before this court seeking for the
following reliefs:
1. Issue a writ of certiorari to quash the Order of
Blacklisting dated March 28, 2025 passed by the
Respondent whereby the Respondent blacklisted
20.1.20 Ferrous Salts(A) + Folic Acid (B) 45 mg
elemental Iron (A) + 400 mcg (B) Pink Tablet 45
mg + 400 mcg 1x10x10 (for brevity, “Drug”)
manufactured and supplied by the petitioner
herein, for a period of 3 years, vide Order dated
March 28, 2025 (Impugned Order), vide
Annexure-A;
2. Pass such other order/s as this Hon’ble Court
deems fit to grant in the interest of justice and
equity.
2. The petitioner claims to be a pharmaceutical
company engaged in the manufacture and supply of
pharmaceutical products. The respondent –
Karnataka State Medical Supplies Corporation
Limited (KSMSCL) issued a tender notification dated
05.05.2023 for procurement of 4,46,724 units of iron
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tablets. The petitioner participated in the tender
process and, upon evaluation, was declared a
successful bidder for supply of the said drugs under a
purchase order valued at Rs.46,45,929/-.
3. The drugs supplied by the petitioner were
accompanied by test reports issued by an NABL-
accredited laboratory as well as the petitioner's in-
house quality control reports. Upon receipt of the
consignment, the respondent subjected the drugs to
quality testing through the Drug Inspectorate. The
sample so tested was reported to be "Not of
Standard Quality" (NSQ). It is on the basis of the
said test report that the respondent issued a
replacement notice dated 24.01.2025 calling upon
the petitioner to replace the quantity of drugs
supplied. A further replacement notice dated
24.02.2025 was also issued. According to the
respondent, despite the issuance of the aforesaid
notices, the petitioner neither replaced the drugs nor
took any corrective action.
4. The report of the Government Analyst declaring the
concerned batch of drugs as "Not of Standard
Quality" formed the basis for initiation of further
action by the respondent. Pursuant thereto, the
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respondent addressed communications dated
24.01.2025, 27.02.2025, and 28.02.2025 calling
upon the petitioner to replace the drugs in question.
5. The petitioner, for the first time, responded by its
letter dated 03.03.2025. In the said reply, the
petitioner contended that neither a copy of the
Government Analyst's report nor the statutory
sample portions had been furnished to it by the Drug
Inspectorate. It was further contended that the
procedure prescribed under the Drugs and Cosmetics
Act, 1940 and the Rules framed thereunder had not
been complied with by the concerned authorities.
According to the petitioner, such non-compliance had
deprived it of its statutory right to challenge the
Government Analyst's report and seek further testing
in accordance with law. On that basis, the petitioner
requested the respondent to keep the replacement
notices in abeyance until it was afforded an
opportunity to avail its statutory remedies.
6. The respondent, however, was not persuaded by the
aforesaid explanation. By its communication dated
06.03.2025, the respondent once again informed the
petitioner that the drugs supplied had been declared
as "Not of Standard Quality" and that the petitioner
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had failed to replace the same despite repeated
notices. Taking the view that such conduct amounted
to a breach of the tender conditions, the respondent
invoked Clause 21.1(g) of the tender document and
issued a show-cause notice calling upon the
petitioner to explain as to why it should not be
blacklisted for a period of three years.
7. The petitioner submitted its reply dated 07.03.2025
to the show-cause notice. In the said reply, the
petitioner reiterated that the drugs had been
manufactured strictly in accordance with the
applicable statutory requirements and had conformed
to all prescribed quality parameters at the time of
manufacture and supply. The petitioner once again
asserted that neither the Government Analyst's
report nor the statutory sample portions had been
furnished to it, though such furnishing was
mandatory under the scheme of the Drugs and
Cosmetics Act, 1940. It was contended that, in the
absence of compliance with the statutory procedure,
the petitioner had been deprived of its right to verify
the report, seek re-analysis, and take appropriate
remedial measures.
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8. The petitioner further contended that until the
statutory procedure was duly followed and the
petitioner was afforded an opportunity to exercise its
rights under the Drugs and Cosmetics Act, 1940, the
respondent could not proceed on the basis of the
Government Analyst's report or initiate penal
consequences such as blacklisting. The petitioner
therefore requested that the proposed action be
deferred and reiterated its stand that the drugs
supplied were of the requisite quality.
9. The respondent did not accept the explanation
offered by the petitioner. Upon consideration of the
petitioner's reply and the material available on
record, the respondent passed the impugned order
dated 28.03.2025 blacklisting the petitioner for a
period of three years. Aggrieved by the said order of
blacklisting, the petitioner has approached this Court
seeking the reliefs prayed for in the present writ
petition.
10. Sri Piyush Kumar Jain, learned counsel appearing for
the petitioner, assailing the impugned order of
blacklisting, submits as follows:
10.1. Learned counsel submits that the petitioner has
at all times complied with the terms and
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conditions of the tender as well as the
contractual obligations arising therefrom. He
places reliance on Rule 26A of the Karnataka
Transparency in Public Procurements Rules,
2000 and contends that the power to debar or
blacklist a tenderer is not unbridled and can be
exercised only in the circumstances
contemplated under the said provision.
10.2. Referring to Rule 26A, learned counsel submits
that a tenderer or contractor may be debarred
only if it is found to have engaged, either
directly or through an agent, in any corrupt or
fraudulent practice while participating in,
competing for, or executing a procurement
contract, including by misleading the
procurement entity at any stage of the
procurement process or during execution of the
contract.
10.3. It is his submission that the allegations made
against the petitioner, even if accepted at their
face value, do not disclose any corrupt practice,
fraudulent conduct, misrepresentation,
suppression of material facts, or any attempt to
mislead the respondent-procurement entity.
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The finding that a particular batch of drugs was
allegedly "Not of Standard Quality" cannot, by
itself, lead to an inference of fraud or corrupt
practice so as to attract the provisions of Rule
26A.
10.4. Learned counsel further submits that the
respondent has proceeded on the assumption
that the Government Analyst's report is
conclusive and has treated the alleged quality
deficiency as sufficient to attract the
consequences of blacklisting. According to him,
a distinction is required to be drawn between a
contractual dispute relating to quality of goods
supplied and conduct amounting to fraud or
corruption warranting debarment from future
participation in public procurement processes.
10.5. It is therefore contended that, in the absence of
any finding that the petitioner had intentionally
misrepresented facts, suppressed material
information, furnished false documents,
manipulated the procurement process, or
otherwise engaged in any fraudulent or corrupt
practice, the jurisdictional requirements of Rule
26A are not satisfied. Consequently, the
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impugned order of blacklisting is alleged to be
without authority of law and liable to be set
aside.
10.6. On the aforesaid basis, learned counsel submits
that the respondent could, at best, have
resorted to such contractual remedies as may
have been available under the tender conditions
in relation to replacement of the drugs or
recovery of losses, but could not have imposed
the drastic consequence of blacklisting the
petitioner for a period of three years in the
absence of the statutory preconditions
prescribed under Rule 26A of the Karnataka
Transparency in Public Procurements Rules,
2000.
10.7. He relies on Sub-rule (2) of Rule 26A which is
reproduced hereunder for easy reference:
26-A. Debarment of Tenderers by Procurement
Entity. (1) The Procurement Entity may proceed with
debarring such tenderer or contractor or supplier or
any of the successor of the tenderer or contractor or
supplier who has engaged directly or through an agent
in a corrupt or fraudulent practices in participating or
competing or executing the contract including
misleading the Procurement Entity at any stage of
procurement and executing activity.
(2) The Procurement Entity may, by order, appoint a
Committee consisting of such officers not below the
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rank of Tender Inviting Authority to be the Debarment
Committee to consider the proposals for debarring
bidder or contractor or supplier and to take a decision
thereof.
(3) On the receipt of information, Debarment
Committee shall provide a reasonable opportunity,
including an oral hearing, to the concerned for making
representations before taking a decision.
(4) For consideration of debarment, Tender Inviting
Authority or any other officer authorized by Tender
Accepting Authority shall furnish the details of such
bidders or contractors or suppliers who have engaged
in corrupt practice and fraudulent practices to the
Debarment Committee constituted under sub-rule (2)
above.
(5) The Debarment Committee may make
recommendations with reasoning in writing, within
thirty days from date of receipt of information:
Provided that, the said period may be extended by
another fifteen days by Procurement Entity for the
reasons to be recorded in writing.
(6) On the recommendations of the Debarment
Committee, the Procurement Entity shall by
notification debar any of tenderer or contractor or
supplier and publish the same on its website and
Karnataka Public Procurement Portal and also
maintain the list of such tenderer or contractor or the
supplier or any of its successors.
(7) The order of debarment shall be deemed to have
been automatically revoked on the expiry of the
period specified in the debarment order.
10.8. By relying on Rule 26A of the Karnataka
Transparency in Public Procurements Rules,
2000, and more particularly sub-rules (2) and
(3) thereof, which prescribe the procedure
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required to be followed before a tenderer,
contractor, or supplier can be debarred. He
submits that the said provision contemplates
not merely substantive grounds for debarment
but also a mandatory procedural safeguard
intended to ensure fairness in the decision-
making process.
10.9. Elaborating on the aforesaid submission,
learned counsel contends that sub-rule (2) of
Rule 26A requires the Procurement Entity to
constitute a Debarment Committee consisting
of officers not below the rank of the Tender
Inviting Authority for the purpose of considering
any proposal for debarment and taking a
decision thereon. Thereafter, in terms of sub-
rule (3), the Debarment Committee is required
to provide a reasonable opportunity to the
concerned tenderer, contractor, or supplier,
including an oral hearing, before arriving at any
decision regarding debarment.
10.10. Learned counsel submits that the scheme of
Rule 26A indicates that the decision to debar a
contractor cannot be taken unilaterally by the
Procurement Entity or any individual officer.
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According to him, the constitution of the
Debarment Committee, consideration of the
proposal by such Committee, grant of a
reasonable opportunity of hearing, including an
oral hearing, and the making of
recommendations by the Committee constitute
mandatory procedural requirements which must
precede any order of debarment.
10.11. It is his submission that, in the present case,
there is nothing on record to indicate that any
Debarment Committee, as contemplated under
Rule 26A(2), was ever constituted or that the
matter was placed before such Committee for
consideration. There is also no material to
indicate that the petitioner was afforded an
opportunity of oral hearing by such Committee
as mandated under Rule 26A(3).
10.12. Learned counsel therefore submits that the
impugned order is liable to be set aside on two
independent grounds.
10.13. Firstly, the foundational requirement under Rule
26A(1), namely the existence of corrupt or
fraudulent practice on the part of the petitioner,
is absent in the facts of the present case.
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Consequently, the very jurisdiction to invoke
Rule 26A is stated to be lacking.
10.14. Secondly and without prejudice to the aforesaid
contention, learned counsel submits that even
assuming that Rule 26A could be invoked, the
mandatory procedure prescribed under sub-
rules (2) to (5) thereof has not been followed.
The absence of a duly constituted Debarment
Committee, failure to place the matter before
such Committee, non-compliance with the
requirement of an oral hearing, and the
absence of any recommendation by the
Committee are all alleged to vitiate the
impugned order.
10.15. On the aforesaid grounds, learned counsel
contends that the order of
blacklisting/debarment is contrary to Rule 26A
of the Karnataka Transparency in Public
Procurements Rules, 2000, violative of the
principles of natural justice, and consequently
liable to be quashed.
10.16. In this regard, he relies upon the decision in
Erusian Equipment and Chemicals Limited
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1
-v- State of West Bengal more particularly
paras 19 & 20, which are reproduced hereunder
for easy reference:
19. Where the State is dealing with individuals in
transactions of sales and purchase of goods, the two
important factors are that an individual is entitled to
trade with the Government and an individual is
entitled to a fair and equal treatment with others. A
duty to act fairly can be interpreted as meaning a duty
to observe certain aspects of rules of natural justice. A
body may be under a duty to give fair consideration to
the facts and to consider the representations but not
to disclose to those persons details of information in
its possession. Sometimes duty to act fairly can also
be sustained without providing opportunity for an oral
hearing. It will depend upon the nature of the interest
to be affected, the circumstances in which a power is
exercised and the nature of sanctions involved
therein.
20. Blacklisting has the effect of preventing a person
from the privilege and advantage of entering into
lawful relationship with the Government for purposes
of gains. The fact that a disability is created by the
order of blacklisting indicates that the relevant
authority is to have an objective satisfaction.
Fundamentals of fair play require that the person
concerned should be given an opportunity to
represent his case before he is put on the blacklist.
10.17. By relying on Erusian Equipment and
1
Chemicals Limited he submits that the
Hon'ble Apex Court has unequivocally held that
blacklisting results in civil consequences and
creates a disability which deprives a person of
1
(1975)1 SCC 70
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the privilege and advantage of entering into
lawful contractual relations with the
Government and its instrumentalities. In view
thereof, the authority proposing to blacklist a
person is required to arrive at an objective
satisfaction after complying with the principles
of natural justice.
10.18. Learned counsel submits that the decision in
1
Erusian Equipment and Chemicals Limited
clearly recognises that fair play in
administrative action requires that the person
proposed to be blacklisted must be afforded a
meaningful opportunity to represent his case
before an order of blacklisting is passed. Such
an opportunity, according to him, cannot be
illusory or merely ritualistic, but must be real,
effective, and adequate.
10.19. It is his submission that in the present case,
the petitioner was not furnished with all the
relevant materials forming the basis of the
proposed action, including the Government
Analyst's report and the statutory sample
portions which would have enabled the
petitioner to effectively contest the allegation
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that the drugs supplied were not of standard
quality. In the absence of such material being
furnished, the petitioner was deprived of an
effective opportunity to defend itself against the
allegations levelled by the respondent.
10.20. Learned counsel further submits that when the
foundation for the proposed blacklisting itself is
the Government Analyst's report declaring the
drugs to be "Not of Standard Quality", the
respondent could not have proceeded to impose
the drastic consequence of blacklisting without
first ensuring that the petitioner had been
placed in a position to challenge, verify, or
otherwise respond to the material relied upon
against it.
10.21. He therefore contends that the requirement of
fairness contemplated in Erusian Equipment
1
and Chemicals Limited is not confined
merely to issuance of a show-cause notice, but
extends to affording a reasonable and
meaningful opportunity to meet the allegations
and materials relied upon by the authority.
According to him, such requirement assumes
greater significance in the present case, where
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the consequence imposed is a three-year
blacklisting, which has serious civil and
commercial repercussions upon the petitioner
and effectively excludes it from participating in
public procurement processes during the period
of debarment.
10.22. Learned counsel therefore submits that the
impugned order is liable to be set aside not
only on account of non-compliance with Rule
26A of the Karnataka Transparency in Public
Procurements Rules, 2000, but also on the
ground that the action of the respondent is
contrary to the principles of natural justice and
the law laid down by the Hon'ble Apex Court in
1
Erusian Equipment and Chemicals Limited .
10.23. He relies upon the decision in Kulja Industries
Limited -v- Chief General Manager,
Western Telecom Project, Bharat Sanchar
2
Nigam Limited , more particularly, para 20
which is reproduced hereunder for easy
reference:
20. It is also well settled that even though the right of
the writ petitioner is in the nature of a contractual
right, the manner, the method and the motive behind
2
(2014)14 SCC 741
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the decision of the authority whether or not to enter
into a contract is subject to judicial review on the
touchstone of fairness, relevance, natural justice, non-
discrimination, equality and proportionality. All these
considerations that go to determine whether the
action is sustainable in law have been sanctified by
judicial pronouncements of this Court and are of
seminal importance in a system that is committed to
the rule of law. We do not consider it necessary to
burden this judgment by a copious reference to the
decisions on the subject. A reference to the following
passage from the decision of this Court in Mahabir
Auto Stores v. Indian Oil Corpn.14 should, in our view,
suffice: (SCC pp. 760-61, para 12)
"12. It is well settled that every action of the State or
an instrumentality of the State in exercise of its
executive power, must be informed by reason. In
appropriate cases, actions uninformed by reason may
be questioned as arbitrary in proc proceedings under
Article 226 or Article 32 of the Constitution. Reliance
in this connection may be placed on the observations
of this Court in Radhakrishna Agarwal v. State of
Bihar.... In case any right conferred on the citizens
which is sought to be interfered, such action is subject
to Article 14 of the Constitution, and must be
reasonable and can be taken only upon lawful and
relevant grounds of public interest. Where there is
arbitrariness in State action of this type of entering or
not entering into contracts, Article 14 springs up and
judicial review strikes such an action down. Every
action of the State executive authority must be
subject to rule of law and must be informed by
reason. So, whatever be the activity of the public
authority, in such monopoly or semi-monopoly
dealings, it should meet the test of Article 14 of the
Constitution. If a governmental action even in the
matters of entering or not entering into contracts, fails
to satisfy the test of reasonableness, the same would
be unreasonable. It appears to us that rule of reason
reasonableness, the same would be unreasonable. and
rule against arbitrariness and discrimination, rules of
fair play and natural justice are part of the rule of law
applicable in situation or action by State
instrumentality in dealing with citizens in a situation
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like the present one. Even though the rights of the
citizens are in the nature of contractual rights, the
manner, the method and motive of a decision of
entering or not entering into a contract, are subject to
judicial review on the touchstone of relevance and
reasonableness, fair play, natural justice, equality and
non-discrimination in the type of the transactions and
nature of the dealing as in the present case.
10.24. By relying on Kulja Industries Limited he
submits that the law is now well settled that
even in matters arising out of contractual
relationships with the State or its
instrumentalities, the actions of the State are
not immune from judicial review. Though the
rights involved may be contractual in nature,
the decision-making process adopted by the
State and its agencies continues to remain
subject to constitutional scrutiny on the
touchstone of Article 14 of the Constitution of
India.
10.25. Learned counsel submits that the Hon'ble Apex
Court has categorically held that the manner,
method, and motive behind a decision to enter
into, continue, terminate, or refuse contractual
relations with a person must satisfy the
requirements of fairness, reasonableness,
relevance, non-arbitrariness, proportionality,
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equality, and observance of the principles of
natural justice. Any action falling short of these
constitutional requirements would be amenable
to judicial review under Article 226 of the
Constitution of India.
10.26. It is his submission that blacklisting is one of
the most severe civil consequences that can be
imposed by a State instrumentality, since it
effectively excludes a person from participating
in future public procurement processes and
adversely impacts its business reputation,
commercial prospects, and right to carry on
trade. Therefore, a decision to blacklist must
necessarily satisfy a higher standard of fairness
and procedural propriety.
10.27. Learned counsel contends that in the present
case, the impugned order does not satisfy the
tests laid down by the Hon'ble Apex Court in
Kulja Industries Limited . According to him,
the respondent has proceeded on the sole basis
of the Government Analyst's report without first
ensuring compliance with the statutory
safeguards available to the petitioner under the
Drugs and Cosmetics Act, 1940 and without
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affording the petitioner an effective opportunity
to challenge the findings contained therein.
10.28. He further submits that the impugned action is
arbitrary and disproportionate inasmuch as the
respondent has proceeded directly to impose
the extreme penalty of blacklisting for a period
of three years without first determining whether
the petitioner had indulged in any fraudulent or
corrupt practice, whether there was any
intentional misconduct on the part of the
petitioner, or whether any lesser measure
would have sufficed in the facts and
circumstances of the case.
10.29. Learned counsel submits that the respondent
has conflated an allegation relating to the
quality of a batch of drugs with conduct
warranting blacklisting. According to him, even
assuming that the drugs supplied were
subsequently reported to be "Not of Standard
Quality", such a circumstance by itself would
not automatically justify the imposition of the
penal consequence of blacklisting unless the
respondent establishes the existence of the
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statutory and contractual conditions warranting
such action.
10.30. Learned counsel therefore contends that the
impugned order suffers from arbitrariness, lack
of proportionality, non-compliance with
statutory requirements, and violation of the
principles of natural justice. It is his submission
that the respondent, being an instrumentality of
the State, was bound to act in a manner
consistent with Article 14 of the Constitution
and the law laid down by the Hon'ble Apex
Court in Kulja Industries Limited , which
mandate that every action affecting the rights
of a contracting party must be informed by
reason, fairness, and proportionality.
10.31. On the aforesaid basis, learned counsel submits
that the impugned order of blacklisting is liable
to be set aside as being arbitrary,
disproportionate, contrary to Rule 26A of the
Karnataka Transparency in Public Procurements
Rules, 2000, violative of the principles of
natural justice, and unsustainable in law.
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10.32. He relies upon Daffodils Pharmaceutics
3
Limited -v- State of Uttar Pradesh , more
particularly para 15, which is reproduced
hereunder for easy reference:
15. In the present case, even if one assumes that
Surender Chaudhary, the accused in the pending
criminal case was involved and had sought to indulge
in objectionable activities, that ipso facto could not
have resulted in unilateral action of the kind which
the State resorted to against Daffodills, which was
never granted any opportunity of hearing or a chance
to represent against the impugned order. If there is
one constant lodestar that lights the judicial horizon
in this country, it is this that no one can be inflicted
with an adverse order, without being afforded a
minimum opportunity of hearing. and prior intimation
of such a move. This principle is too well entrenched
in the legal ethos of this country to be ignored, as the
State did, in this case.
10.33. By relying on Daffodils Pharmaceutics
Limited he submits that the Hon'ble Apex
Court has reiterated the fundamental principle
that no person can be subjected to adverse civil
consequences without being afforded a
meaningful opportunity of hearing and a
reasonable opportunity to represent its case.
10.34. Learned counsel submits that the Supreme
Court has emphasised that even where
allegations exist against a person or where the
authorities entertain a bona fide suspicion
3
(2020)18 SCC 550
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regarding the conduct of a person, such
circumstances by themselves cannot justify
unilateral punitive action without adherence to
the principles of natural justice. The
requirement of prior notice and an effective
opportunity of hearing is not a mere procedural
formality but a substantive safeguard against
arbitrary exercise of power.
10.35. It is his submission that the ratio laid down in
Daffodills Pharmaceutics Limited is
particularly relevant to the facts of the present
case. According to him, the respondent has
proceeded to blacklist the petitioner on the
basis of a Government Analyst's report
declaring the drugs supplied by the petitioner to
be "Not of Standard Quality", without first
ensuring compliance with the statutory
safeguards available to the petitioner under the
Drugs and Cosmetics Act, 1940 and without
furnishing the material necessary to enable the
petitioner to effectively defend itself.
10.36. Learned counsel submits that the petitioner was
repeatedly asserting before the respondent that
neither the Government Analyst's report nor
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the statutory sample portions had been
furnished to it by the Drug Inspectorate.
According to him, unless those materials were
furnished, the petitioner could not effectively
exercise its statutory right to challenge the
report, seek re-analysis of the samples, or
demonstrate that the drugs supplied by it
satisfied the prescribed quality standards.
10.37. It is therefore contended that the opportunity
granted by the respondent was illusory and not
an effective opportunity in the eye of law.
Merely issuing a show-cause notice and calling
for a reply, without furnishing the foundational
material relied upon for initiating the action,
would not satisfy the requirements of natural
justice, particularly when the consequence
proposed is blacklisting for a period of three
years.
10.38. Learned counsel further submits that the
observations of the Hon'ble Apex Court in
Daffodills Pharmaceutics Limited make it
clear that an order resulting in serious civil and
commercial consequences cannot be sustained
where the affected party has been denied a
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meaningful opportunity to defend itself.
According to him, the requirement of a fair
hearing assumes even greater significance in
the present case, where the impugned order
not only affects the existing contractual
relationship between the parties but also has
the effect of excluding the petitioner from
participating in future public procurement
processes.
10.39. On the strength of the aforesaid decision,
learned counsel contends that the impugned
order is vitiated by violation of the principles of
natural justice and procedural fairness. He
submits that the respondent ought to have
deferred any decision regarding blacklisting
until the petitioner had been furnished with the
relevant materials and afforded a full and
effective opportunity to avail its statutory
remedies under the Drugs and Cosmetics Act,
1940.
10.40. Learned counsel therefore submits that the
impugned order of blacklisting is liable to be set
aside on the ground that it has been passed in
violation of the settled principles governing fair
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procedure, natural justice, and administrative
decision-making as recognised by the Hon'ble
Apex Court in Daffodills Pharmaceutics
Limited v. State of Uttar Pradesh .
10.41. By referring to the decisions in Erusian
1
Equipment and Chemicals Limited , in Kulja
2
Industries Limited Daffodils
3
Pharmaceuticals Limited , learned counsel
submits that an order of blacklisting, having
serious civil, commercial, and reputational
consequences, cannot be passed except in strict
compliance with the principles of natural
justice.
10.42. Learned counsel submits that the aforesaid
decisions consistently recognise that
blacklisting results in civil consequences and
has the effect of disabling a person from
entering into future contractual relationships
with the State and its instrumentalities. Such
an action therefore cannot be taken
mechanically or unilaterally and must be
preceded by a fair, reasonable, and effective
opportunity of hearing.
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10.43. Referring particularly to Rule 26A(3) of the
Karnataka Transparency in Public Procurements
Rules, 2000, learned counsel submits that the
requirement of providing a "reasonable
opportunity, including an oral hearing", has
now been statutorily incorporated by the Rule-
making Authority. According to him, the
statutory requirement of an oral hearing is in
consonance with the principles laid down by the
Hon'ble Apex Court in the aforesaid decisions
and is intended to ensure that a contractor is
afforded an effective opportunity to explain its
conduct before being visited with the drastic
consequence of debarment or blacklisting.
10.44. It is his submission that where the statute itself
mandates an oral hearing before a decision
regarding debarment is taken, such
requirement cannot be diluted or substituted
merely by issuance of a show-cause notice and
consideration of a written reply. An oral
hearing, according to him, assumes greater
significance in cases such as the present one,
where disputed questions relating to the
Government Analyst's report, compliance with
the provisions of the Drugs and Cosmetics Act,
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1940, and the petitioner's entitlement to seek
re-analysis of samples are involved.
10.45. Learned counsel therefore contends that the
respondent could not have proceeded to
blacklist the petitioner without first constituting
the Debarment Committee contemplated under
Rule 26A(2) and thereafter affording the
petitioner an opportunity of oral hearing before
such Committee in terms of Rule 26A(3).
10.46. In the present case, according to learned
counsel, no oral hearing whatsoever was
afforded to the petitioner prior to the passing of
the impugned order. Consequently, apart from
being contrary to the mandate of Rule 26A(3),
the impugned action is also alleged to be
violative of the principles of natural justice and
the law laid down by the Hon'ble Apex Court
governing blacklisting and debarment.
10.47. On the aforesaid basis, learned counsel submits
that the absence of an oral hearing goes to the
root of the matter and vitiates the entire
decision-making process. He therefore contends
that the impugned order of blacklisting is liable
to be set aside on this ground alone, without
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reference to the merits of the allegations made
against the petitioner.
10.48. He relies upon the decision in Isolators and
Isolators -v- Madhya Pradesh Madhya
4
Kshetra Vidyut Vitran Company Limited ,
more particularly para 14 and 35, which are
reproduced hereunder for easy reference:
14. In the given circumstances, the appellant
approached the Madhya Pradesh High Court, Principal
Seat at Jabalpur by way of WP No.7579 of 2020
challenging the aforesaid order dated 13.2.2020. The
High Court, by its order dated 8.7.2020, set aside the
order dated 13.2.2020 and permitted the respondents
to pass a fresh order within 15 days after affording an
opportunity of hearing to the appellant.
35. As regards the principles of law applicable to the
case, we need not elaborate on various decisions cited
at the Bar. Suffice it would be to take note of the
decision in UMC Technologies wherein, the substance
of the other relevant decisions has also been duly
noticed by this Court while explaining the principles
governing such actions of debarment/blacklisting.
Therein, this Court, inter alia, underscored the
requirement of specific show-cause notice and referred
to the settled principles in the following terms: (SCC
pp. 558-61, paras 13-14 & 16-19)
"13. At the outset, it must be noted that it is the first
principle of civilised jurisprudence that a person
against whom any action is sought to be taken or
whose right or interests are being affected should be
given a reasonable opportunity to defend himself. The
basic principle of natural justice is that before
adjudication starts, the authority concerned should
give to the affected party a notice of the case against
him so that he can defend himself. Such notice should
4
(2023)8 SCC 607
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be adequate and the grounds necessitating action and
the penalty/action proposed should be mentioned
specifically and unambiguously. An order travelling
beyond the bounds of notice is impermissible and
without jurisdiction to that extent. This Court in Nasir
Ahmad v. Custodian (Evacuee Property) has held that
it is essential for the notice to specify the particular
grounds on the basis of which an action is proposed to
be taken so as to enable the noticee to answer the
case against him. If these conditions are not satisfied,
the person cannot be said to have been granted any
reasonable opportunity of being heard.
14. Specifically, in the context of blacklisting of a
person or an entity by the State or a State
Corporation, the requirement of a valid, particularised
and unambiguous show-cause notice is particularly
crucial due to the severe consequences of blacklisting
and the stigmatisation that accrues to the
person/entity being blacklisted. Here, it may be gainful
to describe the concept of blacklisting and the
graveness of the Consequences occasioned by it.
Blacklisting has the effect of denying a Derson or an
entity the privileged opportunity of entering into
government contracts. This privilege arises because it
is the State who is the counterparty in government
contracts and as such, every eligible person is to be
afforded an equal opportunity to participate in such
contracts, without arbitrariness and discrimination. Not
only does blacklisting take away this privilege, it also
tarnishes the blacklisted person's reputation and
brings the person's character into question.
Blacklisting also has long-lasting civil consequences for
the future business prospects of the blacklisted person.
16. The severity of the effects of blacklisting and the
resultant need for strict observance of the principles of
natural justice before passing an order of blacklisting
were highlighted by this Court in Erusian Equipment &
Chemicals Ltd. v. State of W.B.2 in the following
terms: (SCC pp. 74-75, paras 12, 15 & 20)
12. The order of blacklisting has the effect of depriving
a person of equality of opportunity in the matter of
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public contract. A person who is on the approved list is
unable to enter into advantageous relations with the
Government because of the order of blacklisting. A
person who has been dealing with the Government in
the matter of sale and purchase of materials has a
legitimate interest or expectation. When the State acts
to the prejudice of a person it has to be supported by
legality.
15.... The blacklisting order involves civil
consequences. It casts a slur. It creates a barrier
between the persons blacklisted and the Government
in the matter of transactions. The blacklists are
"instruments of coercion".
20. Blacklisting has the effect of preventing a person
from the privilege and advantage of entering into
lawful relationship with the Government for purposes
of gains. The fact that a disability is created by the
order of blacklisting indicates that the relevant
authority is to have an objective satisfaction.
Fundamentals of fair play require that the person
concerned should be given an opportunity to represent
his case before he is put on the blacklist.'
17. Similarly, this Court in Raghunath Thakur v. State
of Bihar struck down an order of blacklisting for future
contracts on the ground of non-observance of the
principles of natural justice. The relevant extract of the
judgment in that case is as follows: (SCC p. 230, para
4)
4.... [I]t is an implied principle of the rule of law that
any order having civil consequences should be passed
only after following the principles of natural justice. It
has to be realised that blacklisting any person in
respect of business ventures has civil consequence for
the future business of the person concerned in any
event. Even if the rules do not express so, it is an
elementary principle of natural justice that parties
affected by any order should have right of being heard
and making representations against the order.'
18. This Court in Gorkha Security Services v. State
(NCT of Delhi) has described blacklisting as being
equivalent to the civil death of a person because
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blacklisting is stigmatic in nature and debars a person
from participating in government tenders thereby
precluding him from the award of government
contracts. It has been held thus: (SCC p. 115, para
16)
16. It is a common case of the parties that the
blacklisting has to be preceded by a show-cause
notice. Law in this regard is firmly grounded and does
not even demand much amplification. The necessity of
compliance with the principles of natural justice by
giving the opportunity to the person against whom
action of blacklisting is sought to be taken has a valid
and solid rationale. behind it. With blacklisting, many
civil and/or evil consequences follow. It is described as
"civil death" of a person who is foisted with the order
of blacklisting. Such an order is stigmatic in nature and
debars such a person from participating in government
tenders which means precluding him from the award of
government contracts.'
19. In light of the above decisions, it is clear that a
prior show-cause notice granting a reasonable
opportunity of being heard is an essential element of
all administrative decision-making and particularly so
in decisions pertaining to blacklisting which entail
grave consequences for the entity being blacklisted. In
these cases, furnishing of a valid show-cause notice is
critical and a failure to do so would be fatal to any
order of blacklisting pursuant thereto."
10.49. Relying on Isolators and Isolators he
submits that the law relating to blacklisting and
debarment has now attained a high degree of
certainty. According to him, the said decision
reiterates and consolidates the principles laid
down in Erusian Equipment and Chemicals
Limited, Raghunath Thakur, Gorkha
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Security Services, UMC Technologies, and
other decisions governing the exercise of the
power of blacklisting by State authorities and
instrumentalities.
10.50. Learned counsel submits that the Hon'ble Apex
Court has once again emphasised that
blacklisting entails serious civil, commercial,
and reputational consequences and has the
effect of depriving a person of the opportunity
to participate in public contracts. Such an
action, being stigmatic in nature and having
long-term consequences on the business
prospects of the affected entity, necessarily
requires strict adherence to the principles of
natural justice.
10.51. It is his submission that the decision in
Isolators and Isolators underscores three
fundamental requirements before an order of
blacklisting can be sustained, namely: (i)
issuance of a valid and specific show-cause
notice; (ii) disclosure of the precise allegations
and proposed action so as to enable an
effective response; and (iii) grant of a
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reasonable and meaningful opportunity of
hearing before a final decision is taken.
10.52. Learned counsel submits that the Hon'ble Apex
Court has specifically recognised that a show-
cause notice must not be vague, omnibus, or
ambiguous. The notice must clearly indicate not
only the factual allegations but also the precise
penal consequences proposed to be imposed.
Unless the noticee is informed of the exact case
it is required to meet and the action proposed
against it, the opportunity of hearing would be
rendered illusory.
10.53. Applying the aforesaid principles to the facts of
the present case, learned counsel contends that
the petitioner was not furnished with the
foundational materials on the basis of which the
respondent proposed to proceed against it. In
particular, neither the Government Analyst's
report nor the statutory sample portions were
furnished to the petitioner despite repeated
requests. Consequently, the petitioner was
deprived of an effective opportunity to verify,
challenge, or rebut the allegations forming the
basis of the proposed action.
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10.54. Learned counsel also submits that the decision
in Isolators and Isolators reiterates that a
failure to comply with the requirements of a
valid show-cause notice and a reasonable
opportunity of hearing is fatal to an order of
blacklisting. Since blacklisting has been
repeatedly characterised by the Hon'ble Apex
Court as a measure having grave civil
consequences and, in certain contexts, akin to
a "civil death" insofar as future business
opportunities are concerned, strict compliance
with the principles of natural justice is
indispensable.
10.55. It is therefore contended that the impugned
order is liable to be set aside on the ground
that the respondent has failed to satisfy the
procedural safeguards mandated by law, the
principles of natural justice, and the
requirements reiterated by the Hon'ble Apex
Court in Isolators and Isolators . According to
learned counsel, the cumulative effect of the
absence of a valid debarment process under
Rule 26A, non-furnishing of the material relied
upon, non-grant of an effective oral hearing,
and denial of an opportunity to avail statutory
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remedies under the Drugs and Cosmetics Act,
1940, renders the impugned order
unsustainable in law.
10.56. He relies upon the decision in Municipal
Corporation of Greater Mumbai -v-
5
Abhilash Lal , more particularly para 39,
which is reproduced hereunder for easy
reference:
39. The principle that if a statute requires a thing to
be done in a particular manner, it should be done in
that manner or not at all, articulated in Nazir Ahmad
v. King Emperor, has found widespread acceptance.
In the context of this case, it means that if alienation
or creation of any interest in respect of MCGM's
properties is contemplated in the statute through a
particular manner, that end can be achieved only
through the prescribed mode, or not at all.
5
10.57. Relying on Abhilash Lal , he submits that it is
a settled principle of law that where a statute
prescribes a particular procedure for doing a
thing, the same must be done only in the
manner so prescribed and in no other manner.
10.58. Learned counsel submits that Rule 26A of the
Karnataka Transparency in Public Procurements
Rules, 2000 prescribes the procedure for
5
(2020) 13 SCC 234
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debarment, including constitution of a
Debarment Committee, grant of a reasonable
opportunity including an oral hearing, and
consideration of the matter by such Committee
before any order of debarment is passed.
10.59. It is his submission that in the present case,
the procedure prescribed under Rule 26A has
not been followed. Therefore, applying the
principle laid down in Abhilash Lal , the
impugned order of blacklisting is liable to be set
aside as having been passed in contravention of
the mandatory statutory procedure.
10.60. He relies upon the decision in OPTO Circuit
6
India Limited -v- Axis Bank & others , more
particularly para 14, which is reproduced
hereunder for easy reference:
14. This Court has time and again emphasised that
if a statute provides for a thing to be done in a
particular manner, then it has to be done in that
manner alone and in no other manner. Among
others, in a datter relating to the presentation of an
election petition, as per the procedure prescribed
under the Patna High Court Rules, this Court had an
occasion to consider the Rules to find out as to what
would be a valid presentation of an election petition
in Chandra Kishore Jha v. Mahavir Prasad and in the
6
(2021) 6 SCC 707
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course of consideration observed as hereunder:
(SCC p. 273, para 17)
17. It is a well-settled salutary principle that if a
statute provides for a thing to be done in a
particular manner, then it has to be done in that
manner and in no other manner."
Therefore, if the salutary principle is kept in
perspective, in the instant case, though the
authorised officer is vested with sufficient power;
such Dower is circumscribed by a procedure laid
down under the statute. As Euch the power is to be
exercised in that manner alone, failing which it
would fall foul of the requirement of complying with
due process under law. We have found fault with
the authorised officer and declared the action bad
only insofar as not following the legal requirement
before and after freezing the account. This shall not
be construed as an opinion expressed on the merit
of the allegation or any other aspect relating to the
matter and the action initiated against the appellant
and its Directors which is a matter to be taken note
of in appropriate proceedings if at all any issue is
raised by the aggrieved party.
10.61. By relying on OPTO Circuit India Limited he
submits that even where an authority
possesses the power to take a particular action,
the exercise of such power is circumscribed by
the procedure prescribed under the relevant
statute.
10.62. Learned counsel submits that the Hon'ble Apex
Court has reiterated the settled principle that
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where a statute prescribes a particular
procedure, the authority is bound to adhere to
the same and any deviation therefrom would
render the action vulnerable to challenge on the
ground of non-compliance with due process.
10.63. Applying the said principle to the facts of the
present case, learned counsel contends that
even assuming that the respondent had the
power to debar or blacklist the petitioner, such
power could only have been exercised in strict
compliance with Rule 26A of the Karnataka
Transparency in Public Procurements Rules,
2000. Since the mandatory procedure
prescribed thereunder has not been followed,
the impugned order is liable to be set aside.
10.64. By relying on the decisions in Isolators and
4 5
Isolators , Abhilash Lal and OPTO Circuit
6
India Limited , his submission is that where a
statute or statutory rule prescribes both the
source of power and the manner of its exercise,
the authority concerned is bound to act strictly
within the four corners thereof. It is his
submission that no adverse action, particularly
one resulting in civil consequences such as
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blacklisting or debarment, can be taken except
in accordance with the authority conferred by
the statute and the procedure prescribed
thereunder. Any action taken dehors the
statutory framework or in derogation of the
prescribed procedure would be without
authority of law and liable to be set aside.
10.65. He relies upon the decision in Sujal Pharma -
v- Karnataka State Medical Supplies
7
Corporation Limited more particularly para
19 thereof, which is reproduced hereunder for
easy reference:
19. In light of the above decisions, it is clear that a
prior show-cause notice granting a reasonable
opportunity of being heard is an essential element of
all administrative decision-making and particularly so
in decisions pertaining to blacklisting which entail
grave consequences for the entity being blacklisted. In
these cases, furnishing of a valid show-cause notice is
critical and a failure to do so would be fatal to any
order of blacklisting pursuant thereto.
7
10.66. By relying on Sujal Pharma case, his
submission is again that this Court, following
the settled principles laid down by the Hon'ble
Apex Court, has reiterated that a prior show-
7
WP No.20520/2021 DD 18.04.2024
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cause notice coupled with a reasonable
opportunity of being heard is an indispensable
requirement in administrative decision-making,
particularly in matters relating to blacklisting
and debarment which entail serious civil and
commercial consequences.
10.67. Learned counsel submits that the decision
emphasises that the issuance of a valid show-
cause notice and the grant of an effective
opportunity of hearing are not empty
formalities but foundational requirements of a
lawful blacklisting process. Failure to comply
with such requirements would render the
resultant order unsustainable.
10.68. Applying the aforesaid principle to the facts of
the present case, learned counsel contends that
though a show-cause notice was issued, no oral
hearing, as contemplated under Rule 26A(3) of
the Karnataka Transparency in Public
Procurements Rules, 2000, was afforded to the
petitioner prior to the passing of the impugned
order. According to him, the denial of such an
opportunity has resulted in violation of the
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principles of natural justice and vitiates the
entire decision-making process.
10.69. On the aforesaid basis, learned counsel submits
that the impugned order of blacklisting is liable
to be set aside on the ground of non-
compliance with the mandatory requirement of
affording the petitioner a reasonable and
effective opportunity of hearing.
11. Learned counsel for respondent Smt.Sumana Baliga
would submit that,
11.1. At the outset, learned counsel submits that the
entire challenge mounted by the petitioner
proceeds on an erroneous assumption that the
impugned action has been taken under Rule
26A of the Karnataka Transparency in Public
Procurements Rules, 2000. According to her,
the impugned action is not one of debarment
founded on allegations of fraud or corrupt
practices under Rule 26A, but is an action taken
in exercise of the contractual rights reserved to
the respondent under Clause 21.1(g) of the
tender conditions. Therefore, the petitioner's
extensive reliance on Rule 26A is wholly
misplaced.
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11.2. Clause 21 of the tender notification is
reproduced hereunder for easy reference:
21. Debarment/Blacklisting:
Unless otherwise specified in the forgoing clauses, the
KSMSCL reserve the rights to Debar/Blacklist the
hidder/supplier against specific products, for a period
of not less than 3 years as per the guidelines issued
by the Government of Karnataka under section
26(AXBXC) vide notification No NO FD 884 Exp-
12/2019, Bangalore lapses/defaults being
reported/found/ observed/committed as detailed
under
21.1. Debarment/Blacklisting of the firm for a
product
a) Not having manufacturing Unit/installed capacity,
as declared at the time of bid submission.
b) Non submission of Security deposit within the
stipulated/extended time, leading to cancellation of
LOV Purchase order.
c) Withdrawal of bid or non-execution of supplies
within the stipulated/extended period.
d) Supply of spurious/inferior/substandard/NSQ
products or supply of Mis-branded/unsafe/medical
devices.
e) Violation and convictions if any under the Drugs
and Cosmetics Act or any other applicable laws/rules
during the currency of contract period.
f) Non-adherence to Delivery schedules and agreed
terms and conditions of the tender, including non-
submission of the Performance Security leading the
cancellation of the supply order.
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g) Failure of quality at the time of Lab tests in 2 or
more than 2 batches of a product in quality test
h) Any other Corrupt/Fraudulent/unethical business
practices
21.2. Debarment/Blacklisting of the firm as a
whole
a) Submission of false/misleading/ fabricated/
invalid/void documents against the bid
b) If a firm is awarded with only one product, 2 or
more than 2 batches of such product fails in quality
test.
c) In case of a firm debarred/blacklisted by the
KSMSCL for more than 2 drugs/products within a
period of one year either under the same or different
Tenders/Purchase orders for any of the reasons stated
above or committing similar offence in more than 2
instances, the KSMSCL. reserves the right to Blacklist
the firm as a whole for a period of not less than 3
years as per the provisions of the KTPP Act/Rules and
guidelines issued by the Government of Karnataka
under section 26(A)(B)(C) vide notification No NO:FD
884 Exp-12/2019, Bangalore Dated 7th May 2020,
apart from cancellation of the Purchase order,
forfeiture of EMD/Security Deposit
d) Any other Corrupt/Fraudulent/unethical practices
The blacklisting of particular product or company/firm
will be done without prejudice to other penalties
Which may be imposed as per conditions of Tender
documents and also to other actions which may be
initiated under relevant Acts or any other law of Land.
KSMSCL, will display names of such blacklisted
product(s) and company/firm on its website and also
circulate the same among other state Government/
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Central Government and its procurement agencies
including respective State Drugs Control Department
where the company or firm is located.
21.4. The process of Debarment/Blacklisting and
Resolution of Disputes:
The process of Debanent/blacklisting by KSMSCL will
be carried in accordance with the provisions of the
notification No NO:FD 884 Exp-12/2019, Bangalore
Dated 7th May 2020 In case of a dispute or difference
KTPP Act/Rules and guidelines issued by the
Government of Karnataka under section 26(AXBXC)
vide Debarment/Blacklisting, such dispute or
difference shall be settled as per the provisions of the
said Act/Rules arising between the KSMSCL and a
supplier relating to any matter arising out of or
connected with the and notifications.
11.3. Learned counsel submits that Rule 26A and
Clause 21.1(g) operate in different fields and
cater to different contingencies. Rule 26A deals
with debarment of a tenderer, contractor, or
supplier on account of corrupt or fraudulent
practices affecting the procurement process.
Clause 21.1(g), on the other hand, provides for
blacklisting/debarment on account of quality
failure detected during laboratory testing of the
supplied product. Thus, the source of power
exercised in the present case is contractual and
not statutory.
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11.4. Referring to Clause 21.1(g), learned counsel
submits that the parties had expressly agreed
that failure of quality in two or more batches of
a product during laboratory testing would entail
the consequences stipulated therein. The
petitioner, having voluntarily participated in the
tender process and accepted the tender
conditions without demur, cannot now seek to
avoid the contractual consequences arising
from a breach thereof.
11.5. Learned counsel therefore disputes the
petitioner's contention that the respondent was
required to establish fraud, corruption,
misrepresentation, or any other conduct
contemplated under Rule 26A(1). According to
her, such a requirement would arise only if
action was being taken under Rule 26A. Since
the impugned action is founded upon quality
failure under Clause 21.1(g), the question of
proving fraud or corrupt practice does not arise
at all.
11.6. Learned counsel also disputes the petitioner's
contention regarding the constitution of a
Debarment Committee under Rule 26A(2). It is
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her submission that once Rule 26A itself is
inapplicable, the petitioner cannot insist upon
compliance with procedural requirements
contained therein. The obligation to constitute a
Debarment Committee, obtain
recommendations therefrom, and proceed in
the manner contemplated under Rule 26A
would arise only where action is initiated under
the said Rule and not where action is taken
pursuant to a contractual stipulation
independently agreed upon by the parties.
11.7. Learned counsel further submits that the
petitioner's reliance upon Rule 26A(3) requiring
an oral hearing is equally misconceived.
According to her, the requirement of an oral
hearing under Rule 26A is a statutory safeguard
attached to proceedings under that Rule. The
petitioner cannot transplant the procedural
requirements of Rule 26A into a contractual
action taken under Clause 21.1(g).
11.8. Without prejudice to the above, learned counsel
submits that the petitioner was in fact afforded
adequate opportunity to place its defence on
record. The petitioner received replacement
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notices, responded thereto, received a specific
show-cause notice proposing blacklisting, and
submitted detailed replies raising all
contentions which are now sought to be urged
before this Court. Thus, the petitioner cannot
contend that it was taken by surprise or denied
an opportunity to explain its position.
11.9. Learned counsel submits that the reliance
placed on Erusian Equipment and Chemicals
1 2
Limited , Kulja Industries Limited ,
3
Daffodills Pharmaceutics Limited ,
4 7
Isolators and Isolators , and Sujal Pharma
does not advance the petitioner's case. The
principle emerging from all the aforesaid
decisions is that a person proposed to be
blacklisted must be put on notice and afforded
a reasonable opportunity to represent its case.
The said requirement, according to her, stands
fully satisfied in the present case.
11.10. Learned counsel submits that none of the
aforesaid decisions lay down an inflexible
proposition that an oral hearing is mandatory in
every case irrespective of the governing
statutory or contractual framework. The
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requirement is one of fairness and reasonable
opportunity. In the present case, the petitioner
was fully aware of the allegations, the proposed
action, and the basis thereof and had submitted
detailed written representations which were
duly considered before the impugned order
came to be passed.
11.11. Learned counsel further submits that the
petitioner is attempting to conflate two
independent issues, namely, the validity of the
Government Analyst's report and the
respondent's contractual entitlement to act
upon the same. According to her, so long as the
Government Analyst's report remains valid and
operative, the respondent is entitled to proceed
on the basis thereof, if the defective products
were not replaced as sought for.
11.12. It is her submission that the respondent is
neither the authority which conducted the
testing nor the authority which issued the
report. The respondent merely acted upon the
findings recorded by the competent statutory
authorities under the Drugs and Cosmetics Act,
1940. Therefore, unless and until the report is
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set aside or modified by a competent forum,
the respondent cannot be faulted for relying
upon the same.
11.13. Learned counsel submits that the petitioner's
repeated contention regarding non-supply of
sample portions and non-furnishing of the
Government Analyst's report by the Drug
Inspectorate is a matter which, even if assumed
to be true, cannot invalidate the respondent's
action. Any grievance regarding compliance
with the provisions of the Drugs and Cosmetics
Act, 1940 is required to be agitated against the
concerned authorities under the said enactment
and cannot be used as a defence to defeat the
contractual rights of the respondent.
11.14. Learned counsel submits that despite
repeatedly asserting that it intended to
challenge the Government Analyst's report, the
petitioner has not placed any material before
the respondent or before this Court to establish
that the report was in fact challenged before
the competent authority. The petitioner cannot
indefinitely postpone contractual consequences
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by merely expressing an intention to avail legal
remedies without actually pursuing them.
11.15. Learned counsel further submits that the
petitioner had a clear opportunity to mitigate
the consequences arising from the adverse
report by replacing the drugs in terms of the
replacement notices issued by the respondent.
Instead of replacing the drugs, the petitioner
continued to insist upon acceptance of a
product which had already been declared to be
"Not of Standard Quality" by the competent
authority.
11.16. According to her, the respondent, being
entrusted with procurement and distribution of
medicines intended for public healthcare
institutions, could not have accepted such a
position. The respondent owes a duty not
merely to the petitioner but to the public at
large to ensure that only drugs conforming to
the prescribed standards enter the public
healthcare system.
11.17. Learned counsel submits that the petitioner's
reliance on the decisions in Municipal
Corporation of Greater Mumbai v. Abhilash
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5
Lal and OPTO Circuit India Limited v. Axis
6
Bank & Others is equally misplaced. Those
decisions merely reiterate the principle that
where a statute prescribes a particular
procedure, such procedure must be followed. In
the present case, according to her, the action is
not founded upon Rule 26A and therefore the
procedural requirements contained therein are
inapplicable.
11.18. It is her submission that once the source of
power is traced to Clause 21.1(g) of the tender
conditions, the validity of the action must be
tested on the touchstone of the contractual
stipulation and not by importing procedural
requirements from a distinct statutory provision
governing a different category of misconduct.
11.19. Learned counsel further submits that the
petitioner's argument that oral hearing would
necessarily have altered the outcome is wholly
speculative. The foundation of the respondent's
action is the Government Analyst's report
declaring the drugs to be "Not of Standard
Quality". Unless the petitioner could
demonstrate that the report had been set
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aside, modified, or rendered inoperative, no
amount of oral submissions before the
respondent could have altered the factual basis
on which the respondent was obliged to act.
11.20. According to her, the law does not insist upon
compliance with futile or empty formalities.
Where the relevant facts are borne out by a
subsisting statutory report and the affected
party has already submitted its written
explanation, the absence of an oral hearing
does not, by itself, render the decision invalid.
11.21. Learned counsel finally submits that the
impugned action is neither arbitrary nor
disproportionate. The respondent has merely
enforced the contractual consequences
expressly contemplated by the tender
conditions. The action is founded upon
laboratory testing conducted through the
statutory mechanism, repeated quality failures,
the petitioner's refusal to replace the drugs,
and the respondent's overriding obligation to
protect public health and maintain quality
standards in public procurement.
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11.22. On the aforesaid grounds, learned counsel
submits that the petitioner has failed to make
out any case of violation of statutory
provisions, breach of natural justice,
arbitrariness, mala fides, or procedural
impropriety warranting interference under
Article 226 of the Constitution of India. The writ
petition is therefore liable to be dismissed.
12. Heard Sri.Piyush Kumar Jain, learned counsel for the
petitioner, Smt.Sumana Baliga, learned counsel for
respondent. Perused papers.
13. The points that would arise for determination are:
(i) Whether the impugned order dated
28.03.2025 is an order of debarment
under Rule 26A of the Karnataka
Transparency in Public Procurements
Rules, 2000 or an order of blacklisting
passed in exercise of the contractual
powers reserved under Clause 21.1(g)
of the tender conditions?
(ii) Whether the respondent was justified in
invoking Clause 21.1(g) of the tender
conditions on the basis of the
Government Analyst's report declaring
the drugs supplied by the petitioner to
be "Not of Standard Quality" and the
petitioner's failure to replace the same
despite repeated notices?
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(iii) Whether compliance with the procedure
contemplated under Rule 26A of the
Karnataka Transparency in Public
Procurements Rules, 2000, including
constitution of a Debarment Committee
and grant of an oral hearing, was
mandatory in the facts and
circumstances of the present case?
(iv) Whether the petitioner was denied a
reasonable and effective opportunity of
hearing before the impugned order
came to be passed and, if so, whether
such denial has resulted in violation of
the principles of natural justice?
(v) Whether the alleged non-furnishing of
the Government Analyst's report and
statutory sample portions under the
Drugs and Cosmetics Act, 1940 vitiates
the impugned action taken by the
respondent under the tender
conditions?
(vi) Whether the impugned order suffers
from arbitrariness, disproportionality,
procedural impropriety, or any other
infirmity warranting interference under
Article 226 of the Constitution of India?
(vii) What order?
14. This Court answers the above points as follows
15. Answer to Point No. (i): Whether the impugned
order dated 28.03.2025 is an order of
debarment under Rule 26A of the Karnataka
Transparency in Public Procurements Rules,
2000 or an order of blacklisting passed in
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exercise of the contractual powers reserved
under Clause 21.1(g) of the tender conditions?
15.1. Sri. Piyush Kumar Jain, learned counsel
appearing for the petitioner, submitted that the
impugned order dated 28.03.2025 is an order
of debarment/blacklisting that squarely falls
within the ambit of Rule 26A of the KTPP Rules.
According to him, Rule 26A is the only statutory
provision governing debarment of tenderers,
contractors, and suppliers by a Procurement
Entity. Since the respondent is a Procurement
Entity under the KTPP Act, any order of
blacklisting or debarment passed by it must
necessarily derive its authority from Rule 26A.
15.2. Sri. Piyush Kumar Jain further submitted that
Rule 26A(1) of the KTPP Rules empowers the
Procurement Entity to debar a tenderer or
contractor who has engaged, directly or
through an agent, in corrupt or fraudulent
practices. He contended that the respondent,
having invoked the power to blacklist the
petitioner, was required to satisfy itself that the
prerequisites under Rule 26A were met,
irrespective of any contractual clause.
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According to him, a contractual clause cannot
override or supplant a statutory provision.
15.3. It was his submission that the impugned order,
though purportedly founded on Clause 21.1(g)
of the tender conditions, is in substance and
effect an order of debarment and must
therefore be tested against the touchstone of
Rule 26A. He contended that the Procurement
Entity cannot circumvent the statutory
procedure prescribed under Rule 26A by
labelling its action as contractual.
15.4. Smt. Sumana Baliga, learned counsel appearing
for respondent Nos. 1 to 3, submitted that the
impugned order is not an order of debarment
under Rule 26A of the KTPP Rules. According to
her, Rule 26A deals with debarment on account
of corrupt or fraudulent practices. The
impugned action, however, is founded upon
Clause 21.1(g) of the tender conditions, which
provides for blacklisting on account of failure of
quality in two or more batches of a product in
quality testing.
15.5. She submitted that Clause 21 of the tender
notification is an independent contractual
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stipulation that the parties voluntarily agreed to
at the time of participating in the tender.
Clause 21.1(g) specifically provides that failure
of quality at the time of laboratory tests in two
or more batches of a product shall be a ground
for debarment/blacklisting. The respondent has
acted strictly in accordance with the said
contractual provision.
15.6. Smt. Sumana Baliga further submitted that
Rule 26A and Clause 21.1(g) operate in entirely
different fields. Rule 26A is concerned with
misconduct such as corruption and fraud,
whereas Clause 21.1(g) is concerned with
quality failure in laboratory testing. The two
provisions are not in conflict, and the
respondent having exercised its contractual
right under Clause 21.1(g), the petitioner's
insistence on compliance with Rule 26A is
wholly misplaced.
15.7. This Court has carefully considered the
submissions of both sides and has examined
the relevant provisions.
15.8. A plain reading of Rule 26A(1) makes it clear
that the power of debarment under the said
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Rule is triggered only when the tenderer,
contractor, or supplier has engaged, directly or
through an agent, in "corrupt or fraudulent
practices" in participating, competing, or
executing the contract, including misleading the
Procurement Entity. The substratum of Rule
26A is, therefore, misconduct in the nature of
corruption, fraud, or misrepresentation.
15.9. Clause 21.1(g) is a contractual provision freely
agreed to by the petitioner upon participating in
the tender. It does not refer to corrupt or
fraudulent practices at all. It provides that
failure of quality in two or more batches of a
product, as revealed by laboratory tests, shall
be a ground for blacklisting. The trigger event
here is quality failure, a factual/technical
matter unconnected with fraud or corruption.
15.10. It is evident from the plain language of both
provisions that they operate in distinct fields.
Rule 26A is directed at protecting the
procurement process from dishonest conduct,
whereas Clause 21.1(g) is directed at ensuring
quality standards in supply. They are not in
conflict but are complementary.
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15.11. The petitioner contended that a Procurement
Entity cannot circumvent the statutory
procedure prescribed under Rule 26A by
labelling its action as contractual. This Court
does not agree with this proposition in its
absolute form. The question is not one of
circumvention but of the source of power.
Where the Procurement Entity acts under a
contractual clause that covers a situation
different from what Rule 26A covers, it cannot
be said that the entity is bypassing Rule 26A.
The two provisions cover different grounds
entirely.
15.12. However, this Court also notices that Clause
21.4 of the tender conditions states that the
process of debarment/blacklisting will be
carried out in accordance with the notification
No. FD 884 Exp-12/2019, Bangalore dated
07.05.2020. It also notes that the show-cause
notice issued by the respondent purports to
invoke Clause 21.1(g) as the specific ground.
Therefore, the respondent's action is founded
on the contractual clause, not Rule 26A.
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15.13. Accordingly, 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.
15.14. This court answers Point No. (i) by holding that
the impugned order dated 28.03.2025 is not an
order of debarment under Rule 26A of the
Karnataka Transparency in Public Procurements
Rules, 2000 but is an order of blacklisting
passed in exercise of the contractual powers
reserved under Clause 21.1(g) of the tender
conditions.
16. Answer to point No. 2: Whether the respondent
was justified in invoking Clause 21.1(g) of the
tender conditions on the basis of the
Government Analyst's report declaring the
drugs supplied by the petitioner to be "Not of
Standard Quality" and the petitioner's failure to
replace the same despite repeated notices?
16.1. Sri. Piyush Kumar Jain submitted that Clause
21.1(g) can be invoked only after a due process
of inquiry and not mechanically upon receipt of
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a Government Analyst's report. He contended
that the petitioner was never given the
opportunity to challenge the report and that the
procedure under the Drugs and Cosmetics Act,
1940 was not followed by the Drug
Inspectorate, which means the report itself is a
product of an invalid process.
16.2. He further contended that the petitioner replied
to the replacement notices and the show-cause
notice, explaining that neither the Government
Analyst's report nor the statutory sample
portions were furnished to it. The petitioner
was thus placed in a position where it could not
challenge the report that formed the very basis
for the proposed blacklisting.
16.3. Sri. Piyush Kumar Jain submitted that a
distinction must be drawn between a
contractual dispute relating to quality of goods
and conduct warranting blacklisting. The mere
finding of quality failure in a batch does not, by
itself, mean that the petitioner was in breach of
the tender conditions in a manner justifying
three years of blacklisting. The respondent
failed to examine whether the failure was
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unintentional, whether the petitioner had duly
replaced the drugs, and whether lesser
contractual remedies were available.
16.4. Smt. Sumana Baliga submitted that the
impugned order has been passed strictly in
accordance with Clause 21.1(g) of the tender
conditions. She submitted that the petitioner
was a willing party to the tender contract and
had accepted its terms without any objection.
Clause 21.1(g) provides that failure of quality
in two or more batches during laboratory
testing shall be a ground for blacklisting. The
Government Analyst's report, which is a
statutory report under the Drugs and Cosmetics
Act, 1940, declared the drugs to be "Not of
Standard Quality". This report constitutes the
factual basis for invoking Clause 21.1(g).
16.5. She further submitted that the respondent is
not the authority which conducts drug testing;
that is done by the Drug Inspectorate through
the Government Analyst. The respondent acted
upon the outcome of that report, as it was
contractually and legally entitled to do. Unless
the Government Analyst's report is set aside by
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a competent forum, the respondent cannot be
expected to ignore it.
16.6. Smt. Sumana Baliga submitted that the
petitioner was also given repeated replacement
notices and failed to replace the drugs or take
corrective action. Despite clear contractual
obligations, the petitioner did not replace the
drugs. This failure independently supports the
invocation of Clause 21.1(g). The respondent
has a paramount duty to protect public health
and to ensure that sub-standard drugs do not
enter the public healthcare system.
16.7. Clause 21.1(g) of the tender conditions
provides that failure of quality in two or more
batches of a product during laboratory testing
shall be a ground for blacklisting. This is a
contractual term, freely agreed to by the
petitioner. The petitioner does not dispute that
the Government Analyst's report declared the
drugs to be "Not of Standard Quality".
16.8. The petitioner's argument is primarily that the
Government Analyst's report is vitiated because
the Drug Inspectorate did not follow the
procedure prescribed under the Drugs and
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Cosmetics Act, 1940, specifically with respect
to furnishing the report and sample portions to
the petitioner. This contention goes to the
validity of the report under the Drugs and
Cosmetics Act framework.
16.9. However, the question under this Point is
whether the respondent, as a Procurement
Entity acting under a contractual clause, was
entitled to proceed on the basis of the report.
The Government Analyst's report, until set
aside or invalidated by a competent forum,
carries the presumption of correctness. The
respondent, which is not the authority that
conducted the test, is entitled to act on the
basis of the report. The respondent is under a
statutory obligation to ensure that only drugs of
standard quality are procured and distributed
through the public healthcare system. To insist
that the respondent must independently
conduct a fresh inquiry into the validity of the
Government Analyst's report before acting on
it, would be to impose an obligation that is
neither expressly required by law nor
commercially practicable.
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16.10. The petitioner received three replacement
notices dated 24.01.2025, 27.02.2025, and
28.02.2025. The petitioner did not replace the
drugs. It is not the petitioner's case that it was
unable to replace the drugs; its case is that it
ought to be allowed to first challenge the
report. The tender conditions, however, do not
provide such a conditional right. The
contractual obligation to replace drugs declared
as "Not of Standard Quality" exists
independently of any statutory remedies
available to the petitioner under the Drugs and
Cosmetics Act, 1940.
16.11. This Court is therefore satisfied that the
respondent was, in principle, justified in
invoking Clause 21.1(g) on the basis of the
Government Analyst's report and the
petitioner's failure to replace the drugs. The
petitioner having accepted the tender
conditions, including Clause 21.1(g), cannot
now claim immunity from its consequences by
questioning the procedural propriety of the
Drug Inspectorate's actions in a collateral
proceeding before the respondent.
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16.12. However, it is important to note that the
justification for invocation of Clause 21.1(g) is
a separate question from the procedural
validity of the blacklisting order itself.
Questions of procedure and natural justice will
be addressed under Points 3 and 4.
16.13. This court answers point No. 2 by holding that
the respondent was justified in invoking Clause
21.1(g) of the tender conditions on the basis of
the Government Analyst's report declaring the
drugs supplied by the petitioner to be "Not of
Standard Quality" and the petitioner's failure to
replace the same despite repeated notices by
invoking Clause 21.1(g), subject to compliance
with the requirements of procedural fairness.
17. Answer to point No. 3: Whether compliance
with the procedure contemplated under Rule
26A of the Karnataka Transparency in Public
Procurements Rules, 2000, including
constitution of a Debarment Committee and
grant of an oral hearing, was mandatory in the
facts and circumstances of the present case?
17.1. Sri. Piyush Kumar Jain submitted that the
entire procedure under Rule 26A of the KTPP
Rules is mandatory whenever a Procurement
Entity proceeds to debar or blacklist a
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contractor. Rule 26A(2) mandates constitution
of a Debarment Committee. Rule 26A(3)
mandates grant of a reasonable opportunity of
hearing, including an oral hearing. Rule 26A(5)
requires the Committee to record its
recommendations in writing within thirty days.
Rule 26A(6) requires an order of debarment to
be issued based on the Committee's
recommendations.
17.2. He submitted that none of these steps were
followed in the present case. No Debarment
Committee was constituted. The matter was
never placed before any Committee. No oral
hearing was afforded. No Committee
recommendation exists on record. The
impugned order was passed directly by the
respondent without any of the safeguards
mandated by Rule 26A.
17.3. Sri. Piyush Kumar Jain relied upon the decisions
in Municipal Corporation of Greater
5
Mumbai v. Abhilash Lal (2020) 13 SCC 234
and OPTO Circuit India Limited v. Axis
6
Bank & Others (2021) 6 SCC 707, which
establish the principle that if a statute
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prescribes a particular manner of doing a thing,
the same must be done only in that manner
and not otherwise. He contended that since
Rule 26A prescribes the procedure, the
respondent was bound to follow it.
17.4. Smt. Sumana Baliga submitted that since the
impugned action is not under Rule 26A but
under Clause 21.1(g) of the tender conditions,
the procedural requirements of Rule 26A are
simply inapplicable. She submitted that Rule
26A's procedure, constitution of a Debarment
Committee, oral hearing, written
recommendations, are procedural safeguards
applicable only when the Procurement Entity
seeks to debar a contractor for corrupt or
fraudulent practices under Rule 26A(1).
17.5. She further submitted that the procedural
requirements of Rule 26A cannot be
transplanted into a contractual action taken
under Clause 21.1(g). To hold otherwise would
be to render contractual provisions ineffective
and would impose on the respondent a burden
that the contract itself does not contemplate.
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17.6. Smt. Sumana Baliga submitted that the
5
decisions in Abhilash Lal and OPTO Circuit
6
India Limited relied upon by the petitioner
only stand for the proposition that where a
statute prescribes a procedure, that procedure
must be followed. Since, in the present case,
the action is contractual and not statutory,
these decisions do not assist the petitioner.
17.7. As this Court has held in Point No. 1, the
impugned order is not an order under Rule 26A
but an order under Clause 21.1(g) of the tender
conditions. Once it is held that the source of
power is contractual, it follows that the specific
procedure prescribed under Rule 26A, including
constitution of a Debarment Committee,
forwarding details to the Committee, making of
written recommendations, and issuance of a
notification, is not mandatory in the present
proceedings.
17.8. In Municipal Corporation of Greater
5
Mumbai v. Abhilash Lal (2020) 13 SCC
234 , the Hon'ble Supreme Court held that if a
statute requires a thing to be done in a
particular manner, it should be done in that
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manner or not at all. This principle is sound.
However, the application of this principle pre-
supposes that the action is one which is
required to be taken under a statute. Where
the action is taken under a contractual
provision and not under the statute, the
principle of Abhilash Lal does not compel
compliance with the statutory procedure
prescribed for a different type of action under a
different provision of law.
17.9. In OPTO Circuit India Limited v. Axis Bank
6
& Others (2021) 6 SCC 707 , the Hon'ble
Supreme Court reiterated the same principle,
stating that if a statute provides for a thing to
be done in a particular manner, then it has to
be done in that manner alone and in no other
manner. This principle also operates within the
same domain: it applies when an authority is
exercising power under a statute and the
statute prescribes the procedure. When the
authority is exercising a contractual right under
a tender clause, the procedure of a different
statutory provision governing a different
subject matter does not govern the action.
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17.10. It is therefore held that the procedure under
Rule 26A, specifically constitution of a
Debarment Committee and obtaining its
recommendations, was not mandatory for the
action taken under Clause 21.1(g). The
5
petitioner's reliance on Abhilash Lal and
6
OPTO Circuit India Limited for importing
Rule 26A's procedure into a contractual action
is rejected.
17.11. 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. Clause 21.4 itself states that the
process of debarment/blacklisting shall be
carried out in accordance with the notification
No. FD 884 Exp-12/2019. This aspect will be
addressed in Point No. 4.
17.12. This court answers point No. 3 by holding that
compliance with the specific procedure under
Rule 26A, including constitution of a Debarment
Committee, grant of an oral hearing and
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obtaining its written recommendations, was not
mandatory in the present case since the action
was taken under Clause 21.1(g) in the facts
and circumstances of the present case.
18. Answer to point No. 4: Whether the petitioner
was denied a reasonable and effective
opportunity of hearing before the impugned
order came to be passed and, if so, whether
such denial has resulted in violation of the
principles of natural justice?
18.1. Sri. Piyush Kumar Jain submitted that the
opportunity of hearing afforded to the
petitioner was illusory and not effective in the
eyes of law. He submitted that the foundation
of the impugned action is the Government
Analyst's report declaring the drugs to be "Not
of Standard Quality". The respondent, however,
did not furnish a copy of this report to the
petitioner. The statutory sample portions were
also not provided. Without these materials, the
petitioner could not meaningfully challenge the
basis of the proposed action.
18.2. He relied on the decision in Erusian
Equipment and Chemicals Limited v. State
1
of West Bengal (1975) 1 SCC 70 , where the
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Hon'ble Supreme Court held that blacklisting
has the effect of preventing a person from the
privilege and advantage of entering into lawful
relationship with the Government for purposes
of gains, and that fundamentals of fair play
require that the person concerned should be
given an opportunity to represent his case
before he is put on the blacklist.
18.3. He further relied upon Kulja Industries
Limited v. Chief General Manager, Western
Telecom Project, Bharat Sanchar Nigam
2
Limited (2014) 14 SCC 741, where the
Hon'ble Supreme Court held that even though
the right of the writ petitioner is in the nature
of a contractual right, the manner, method and
motive behind the decision of the authority is
subject to judicial review on the touchstone of
fairness, relevance, natural justice, non-
discrimination, equality, and proportionality.
18.4. Sri. Piyush Kumar Jain also relied upon
Daffodils Pharmaceutics Limited v. State of
3
Uttar Pradesh (2020) 18 SCC 550, where
the Hon'ble Supreme Court reiterated that no
one can be inflicted with an adverse order
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without being afforded a minimum opportunity
of hearing and prior intimation of such a move.
He submitted that in the present case, the
petitioner was not placed in a position to meet
the case against it.
18.5. He further relied upon Isolators and
Isolators v. Madhya Pradesh Madhya
4
Kshetra Vidyut Vitran Company Limited
(2023) 8 SCC 607 , where the Hon'ble
Supreme Court reiterated the requirement of a
valid, particularised and unambiguous show-
cause notice and held that blacklisting without
proper notice is fatal to the order.
18.6. Relying on Sujal Pharma v. Karnataka State
7
Medical Supplies Corporation Limited (WP
No.20520/2021, decided on 18.04.2024) ,
Sri. Piyush Kumar Jain submitted that this
Court has also held that a prior show-cause
notice granting a reasonable opportunity of
being heard is an indispensable requirement in
administrative decision-making, particularly in
matters relating to blacklisting.
18.7. His further submission was that Rule 26A(3)
itself mandates an oral hearing and that this
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statutory requirement cannot be ignored even if
the action is otherwise contractual. Since
Clause 21.4 incorporates the Government
notification by reference, the procedure
contained therein, which includes the spirit of
Rule 26A, must be followed.
18.8. Smt. Sumana Baliga submitted that the
petitioner was, in fact, afforded adequate
opportunity to present its case. Three
replacement notices were issued, and the
petitioner responded to them. A specific show-
cause notice proposing blacklisting was issued,
to which the petitioner submitted a detailed
reply. The petitioner's submissions were
considered by the respondent before passing
the impugned order.
18.9. She contended that the decisions in Erusian
1
Equipment and Chemicals Limited , Kulja
2
Industries Limited , Daffodils
3
Pharmaceutics Limited , Isolators and
4 7
Isolators , and Sujal Pharma do not help the
petitioner. The principle emerging from all
these decisions is that a person proposed to be
blacklisted must be put on notice and afforded
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a reasonable opportunity to represent his case.
This requirement has been fully met in the
present case. The petitioner received a specific
show-cause notice and submitted a reply.
18.10. Smt. Sumana Baliga submitted that none of the
aforesaid decisions lay down an inflexible rule
that an oral hearing is mandatory in every
case. The requirement is one of overall
fairness. In the present case, the petitioner was
fully aware of the allegations, the proposed
action, and the material forming the basis
thereof, and submitted a detailed written
defence which was duly considered.
18.11. She further submitted that the Government
Analyst's report is a statutory document
prepared by the Government Analyst, a
competent authority under the Drugs and
Cosmetics Act, 1940. The respondent relied
upon this official report. The petitioner is free to
challenge the report before the appropriate
forum under the Drugs and Cosmetics Act, but
it cannot use the non-furnishing of the report
by the Drug Inspectorate as a ground to escape
contractual consequences.
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18.12. It is her submission that a further oral hearing
would have made no difference to the outcome,
because the factual foundation, the
Government Analyst's report, remained
unrebutted and the petitioner had not replaced
the drugs.
18.13. This is perhaps the most critical issue in the
present case. The question is whether the
petitioner was afforded a reasonable and
effective opportunity of hearing before the
impugned order was passed.
18.14. In Erusian Equipment and Chemicals
1
Limited v. State of West Bengal (1975) 1
SCC 70 , the Hon'ble Supreme Court held that
blacklisting results in civil consequences and
creates a disability which deprives a person of
the privilege of entering into contractual
relations with the Government. The Hon'ble
Supreme Court held that fundamentals of fair
play require that the person concerned should
be given an opportunity to represent his case
before he is put on the blacklist. The principle
laid down is clear: opportunity of hearing is
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mandatory before blacklisting. This Court
respectfully follows and applies this principle.
18.15. In Kulja Industries Limited v. Chief General
Manager, Western Telecom Project, Bharat
2
Sanchar Nigam Limited (2014) 14 SCC
741 , the Hon'ble Supreme Court held that even
where the rights involved are contractual, the
manner and method of the State's decision are
subject to judicial review on the touchstone of
fairness, natural justice, non-discrimination,
equality, and proportionality. The Hon'ble
Supreme Court further held that every action of
the State executive authority must be subject
to the rule of law and informed by reason. The
principle relied upon is that contractual
character of the right does not immunise the
decision-making process from the requirements
of fairness and natural justice. This Court
applies this principle to hold that the
respondent, being an instrumentality of the
State, was required to act fairly even in
enforcing a contractual right.
18.16. In Daffodils Pharmaceutics Limited v. State
3
of Uttar Pradesh (2020) 18 SCC 550 , the
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Hon'ble Supreme Court held that no one can be
inflicted with an adverse order without being
afforded a minimum opportunity of hearing and
prior intimation of such a move. The principle is
that an adverse order without any opportunity
of hearing whatsoever is impermissible. In the
present case, a show-cause notice was issued
and a reply was filed. The petitioner was
therefore not deprived of all opportunity. The
question is whether the opportunity was
effective. This aspect is examined below.
18.17. In Isolators and Isolators v. Madhya
Pradesh Madhya Kshetra Vidyut Vitran
4
Company Limited (2023) 8 SCC 607 , the
Hon'ble Supreme Court examined the
requirements of natural justice in blacklisting
cases in detail. The Hon'ble Supreme Court held
that for the notice to be adequate, the grounds
necessitating action and the penalty/action
proposed should be mentioned specifically and
unambiguously, and an order travelling beyond
the bounds of notice is impermissible. The
Hon'ble Supreme Court reiterated that
blacklisting takes away the privilege of
government contracts, tarnishes the person's
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reputation, and has long-lasting civil
consequences. The Hon'ble Supreme Court
concluded that a prior show-cause notice
granting a reasonable opportunity of being
heard is an essential element of administrative
decision-making and failure to do so would be
fatal to any order of blacklisting. The principle
relied upon is that a specific, unambiguous
show-cause notice and a real, meaningful
opportunity of hearing are prerequisites for a
valid order of blacklisting.
18.18. In Sujal Pharma v. Karnataka State
7
Medical Supplies Corporation Limited (WP
No.20520/2021, decided on 18.04.2024) ,
this Court, following the principles laid down by
the Hon'ble Apex Court, held that a prior show-
cause notice and a reasonable opportunity of
being heard are indispensable requirements in
decisions relating to blacklisting. This Court
applies the same principle in the present case.
18.19. Now, applying these principles to the facts of
the present case, the respondent did issue a
show-cause notice dated 06.03.2025 proposing
blacklisting under Clause 21.1(g). The notice
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was specific, identified the ground (quality
failure), and mentioned the proposed
consequence (blacklisting for three years). The
petitioner submitted a detailed reply on
07.03.2025 raising all the contentions which
are now urged before this Court.
18.20. The question, however, is whether the
opportunity was effective. The petitioner's case
is that neither the Government Analyst's report
nor the statutory sample portions were
furnished to it, and therefore it could not
effectively challenge the foundation of the
proposed action. This contention requires
careful consideration.
18.21. The show-cause notice references the
Government Analyst's report as the basis. The
petitioner states it was not furnished a copy of
the report. The respondent has not denied this,
though it contends it is not material. This Court
finds that the Government Analyst's report is
the very foundation of the action under Clause
21.1(g). Without access to the report, the
petitioner cannot meaningfully know precisely
what deficiencies were found, what tests were
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conducted, or on what basis the conclusion of
"Not of Standard Quality" was recorded.
18.22. However, this Court notes the following vital
facts: (i) The petitioner was aware that the
drugs had been tested and declared "Not of
Standard Quality", even if it did not have a
copy of the full report. (ii) The replacement
notices dated 24.01.2025, 27.02.2025, and
28.02.2025 all communicated the fact that the
drugs had been declared NSQ. (iii) The
petitioner responded to these notices and
raised contentions. (iv) The show-cause notice
dated 06.03.2025 was specific and the
proposed action was clearly spelled out. (v) The
petitioner submitted a detailed reply on
07.03.2025.
18.23. Moreover, this Court notes that the petitioner's
primary contention before the respondent was
not that the drugs were in fact of standard
quality, but that the procedure under the Drugs
and Cosmetics Act, 1940 was not followed by
the Drug Inspectorate. The petitioner did not
request the respondent to furnish a copy of the
Government Analyst's report; it requested that
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action be deferred. The petitioner also never
placed any counter-test report or any material
to show that the drugs were in fact, of standard
quality. The petitioner did not also replace the
defective products as sought for, which
replacement, if had been done, the issue with
the respondent would have been closed and the
petitioner could have followed up with the
authorities. In view of this, the respondent did
not have the concerned product for distribution
amongst the general public.
18.24. In this context, this Court applies the principle
3
from Daffodils Pharmaceutics Limited that
a minimum opportunity of hearing is mandatory
and has been provided here. The standard is
one of fairness in the overall context. Fairness
does not always require formal oral hearings; it
requires that the affected party knows the case
against it, knows the proposed action, and has
a genuine opportunity to respond.
18.25. Having regard to the facts that: (a) the
petitioner was informed of the NSQ declaration
through multiple replacement notices; (b) a
specific show-cause notice was issued
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proposing blacklisting; (c) the petitioner
submitted a detailed reply raising all
contentions; and (d) the respondent considered
the reply before passing the impugned order;
this Court is of the view that a reasonable
opportunity of hearing was afforded to the
petitioner.
18.26. The argument that the absence of a formal oral
hearing vitiates the impugned order is not
acceptable in the present context. As the
Hon'ble Supreme Court recognised in Erusian
1
Equipment and Chemicals Limited , the
standard of fairness depends upon the nature
of the interest affected, the circumstances in
which the power is exercised, and the nature of
the sanctions involved. An oral hearing is
desirable but not invariably mandatory. In the
present case, given that the impugned action
was contractual, the facts were clear, the
petitioner had submitted a detailed written
reply, and the material facts were not genuinely
disputed (the petitioner did not deny the NSQ
finding but only questioned the process by
which the report was created), the absence of
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an oral hearing does not render the impugned
order invalid.
18.27. This Court is further conscious that the decision
4
in Isolators and Isolators emphasised the
requirement of a valid and specific show-cause
notice. This Court finds that the show-cause
notice in the present case was specific,
identified the ground, specified the proposed
consequence, and gave the petitioner a real
opportunity to respond. It was not vague or
omnibus.
18.28. Accordingly, this Court holds that while the
opportunity granted was not perfect in the
sense that the Government Analyst's report
was not separately furnished, the petitioner
was not effectively denied an opportunity of
hearing. The hearing that was afforded,
through multiple replacement notices and a
specific show-cause notice followed by
consideration of the petitioner's reply, was
sufficient in the facts and circumstances of the
present case. The respondent's actions did not
violate the principles of natural justice.
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18.29. This Court answers point No. 4 by holding that
the petitioner was not denied a reasonable and
effective opportunity of hearing before the
impugned order came to be passed, hence,
there is no violation of the principles of natural
justice.
19. Answer to point No. 5: Whether the alleged
non-furnishing of the Government Analyst's
report and statutory sample portions under the
Drugs and Cosmetics Act, 1940 vitiates the
impugned action taken by the respondent
under the tender conditions?
19.1. Sri. Piyush Kumar Jain submitted that the
Drugs and Cosmetics Act, 1940 and the Rules
framed thereunder prescribe a specific
procedure with regard to testing of drugs.
When a drug is tested and found to be "Not of
Standard Quality", the Act requires that the
Government Analyst's report be furnished to
the manufacturer, and that a statutory portion
of the sample be retained and made available
to the manufacturer for the purpose of seeking
re-testing by the Central Drugs Laboratory. He
submitted that in the present case, neither the
report nor the sample portions were furnished
to the petitioner by the Drug Inspectorate.
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19.2. He contended that this non-compliance with the
procedure under the Drugs and Cosmetics Act,
1940 vitiates the very foundation of the
respondent's action. If the report itself has
been prepared without following the mandatory
procedure, then it is a flawed report on which
the respondent cannot validly act.
19.3. He further submitted that the respondent
should have waited until the petitioner
exhausted its statutory remedies under the
Drugs and Cosmetics Act, 1940 before
proceeding to blacklist it. To proceed on the
basis of a report whose procedural validity is
itself disputed, while simultaneously refusing to
give the petitioner time to challenge the report,
is arbitrary and unfair.
19.4. Smt. Sumana Baliga submitted that the alleged
non-furnishing of the Government Analyst's
report and sample portions is a grievance
against the Drug Inspectorate and not against
the respondent. Any grievance about
compliance with the Drugs and Cosmetics Act,
1940 must be agitated before the appropriate
authority under that Act or by way of separate
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proceedings. It cannot be set up as a defence
against the contractual action of the
respondent.
19.5. She submitted that the respondent did not
conduct the drug testing. It received the
Government Analyst's report from the
competent authority. The report was a
statutory document prepared by a public official
in discharge of his statutory duty. Until the
report is set aside or reversed by a competent
forum, the respondent is entitled to act upon it.
19.6. Smt. Sumana Baliga further submitted that the
petitioner claims to have wanted to challenge
the report but, despite having raised this issue
in its responses to the replacement notices and
the show-cause notice, has not actually
initiated any proceedings under the Drugs and
Cosmetics Act, 1940. This indicates that the
petitioner's objection is a defence raised to
avoid contractual consequences rather than a
genuine grievance. She submitted that the
Court should not permit a party to use the
alleged procedural failure of a third authority
(the Drug Inspectorate) as a shield against the
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contractual consequences of its own failure to
replace sub-standard drugs.
19.7. The central question under this Point is whether
the alleged failure of the Drug Inspectorate to
furnish the Government Analyst's report and
sample portions to the petitioner under the
Drugs and Cosmetics Act, 1940 vitiates the
respondent's action under Clause 21.1(g) of the
tender conditions.
19.8. This Court is of the view that the petitioner's
argument, though not without merit in
principle, cannot be accepted in the present
factual context for the following reasons.
19.9. First, 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
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grievance to be addressed against the Drug
Inspectorate, not against the respondent.
19.10. 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
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. If the petitioner challenges the report
and succeeds, the appropriate consequence
would be addressed at that stage.
19.11. 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.
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19.12. Fourth, the tender conditions expressly provide
that the process of blacklisting will be carried
out in accordance with the relevant
Government notification. The tender conditions
also make it clear in Clause 21.1(d) that supply
of spurious/inferior/substandard/NSQ products
is itself a ground for blacklisting. Clause
21.1(g) provides an additional ground. The
respondent is not relying on an extra-
contractual source of authority; it is enforcing a
contractual obligation that the petitioner
voluntarily accepted.
19.13. Fifth, 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. This conduct undermines its claim
that the non-furnishing of the report placed it in
an impossible position.
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19.14. For these reasons, this Court holds answers
point no.5 by holding that the alleged non-
furnishing of the Government Analyst's report
and statutory sample portions under the Drugs
and Cosmetics Act, 1940 does not vitiate the
impugned action taken by the respondent
under the tender conditions. The petitioner's
remedy, if any, lies against the Drug
Inspectorate for non-compliance with the Drugs
and Cosmetics Act, 1940, and not by way of a
challenge to the respondent's contractual
action.
20. Answer to point No. 6: Whether the impugned
order suffers from arbitrariness,
disproportionality, procedural impropriety, or
any other infirmity warranting interference
under Article 226 of the Constitution of India?
20.1. Sri. Piyush Kumar Jain submitted that the
impugned order is arbitrary and
disproportionate. He contended that the
respondent has proceeded directly from an NSQ
finding to a three-year blacklisting, without
examining: (a) whether the quality failure was
intentional or accidental; (b) whether the
petitioner had a history of quality failures; (c)
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whether the failure was in a single batch or
multiple batches; and (d) whether a lesser
remedy would have sufficed.
20.2. He relied upon the principles laid down in Kulja
2
Industries Limited (2014) 14 SCC 741 to
submit that even in contractual matters, the
action of the State must satisfy the test of
proportionality and must not be uninformed by
reason. He contended that the drastic step of
blacklisting for three years requires a higher
justification than merely recording that the
drugs were declared NSQ.
20.3. Sri. Piyush Kumar Jain also submitted that the
respondent conflated the issue of quality failure
under Clause 21.1(g) with the more serious
grounds under Clause 21.1(d) (supply of
spurious/substandard drugs) and Clause
21.1(h) (corrupt and fraudulent practices). He
submitted that by using the contractual clause,
the respondent has imposed the same drastic
penalty of three-year blacklisting that would
apply for fraud and corruption, upon what is
essentially a quality dispute in a single tender.
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20.4. He further submitted that Article 14 of the
Constitution of India prohibits arbitrariness in
State action. The respondent, being an
instrumentality of the State, was bound to act
reasonably, proportionately, and in a manner
consistent with Article 14. An action that
ignores relevant considerations and imposes
maximum punishment without calibrating it to
the specific facts amounts to arbitrariness.
20.5. Smt. Sumana Baliga submitted that the
respondent has enforced the contractual
consequences expressly agreed upon by the
parties. Clause 21.1(g) provides for blacklisting
for a period of not less than three years upon
failure of quality in two or more batches during
laboratory testing. The respondent has done no
more and no less than what the contract
provides for.
20.6. She submitted that the petitioner accepted the
tender conditions without any reservation. The
consequences under Clause 21.1(g) are clearly
set out in the tender conditions. The petitioner
cannot now claim that the consequence is
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disproportionate after having contractually
agreed to it.
20.7. Smt. Sumana Baliga submitted that the
respondent's action is not arbitrary. It is
founded on a statutory report prepared by the
Government Analyst, multiple replacement
notices that went unanswered, a specific show-
cause notice, and consideration of the
petitioner's reply. The respondent has a
paramount duty to protect public health and to
maintain quality standards. The penalty
imposed is the minimum prescribed by Clause
21.1(g).
20.8. She also submitted that the writ court,
exercising jurisdiction under Article 226, should
not substitute its own view for the considered
decision of the respondent. The respondent's
assessment of facts and proportionality of
action are within its domain. Unless the
decision is perverse, mala fide, or without any
basis, writ interference is not warranted.
20.9. As regards arbitrariness: The impugned action
is founded on the Government Analyst's report
(a statutory document), on the petitioner's
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undisputed failure to replace the drugs despite
repeated notices, and on the petitioner's own
admission in its replies that it was aware of the
NSQ finding. The action is not without a factual
basis. It is not a case where the respondent
acted without any material. Therefore, the
charge of arbitrariness is not made out.
20.10. As regards disproportionality: The petitioner's
argument that the three-year blacklisting is
disproportionate, though superficially
appealing, cannot be sustained for the following
reasons.
20.11. First, the blacklisting period of three years is
the minimum prescribed by Clause 21.1(g) of
the tender conditions, which the petitioner
freely accepted. When a party accepts a
contractual obligation that includes a fixed
minimum consequence for a specified default, it
cannot ordinarily be heard to say that the
contractually agreed consequence is
disproportionate.
20.12. Second, the respondent's primary obligation is
to protect public health. Sub-standard drugs in
the public healthcare system can cause serious
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harm to patients who may already be in
vulnerable health conditions. The respondent
must be able to take effective deterrent action
against suppliers of sub-standard drugs. A
three-year blacklisting, which is the minimum
contractual consequence, cannot be said to be
excessive in this context.
20.13. Third, this Court's role under Article 226 is not
to substitute its own view of proportionality for
that of the respondent. Proportionality review in
administrative law requires that the measure
adopted must bear a rational relationship to the
legitimate aim being pursued. The aim here is
to protect public health and maintain quality
standards in drug procurement. A blacklisting
of three years for supply of sub-standard drugs
is rationally related to that aim.
20.14. As regards procedural impropriety: As this
Court has held in Points 3 and 4, the
respondent was not required to constitute a
Debarment Committee under Rule 26A, and the
petitioner was afforded a reasonable
opportunity of hearing through the show-cause
notice and written submissions process.
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Therefore, no procedural impropriety
warranting interference under Article 226 is
established.
20.15. The Hon’ble Apex court in Kulja Industries
2
Limited (2014) 14 SCC 741 has held that
even in contractual actions, the State must
satisfy the test of Article 14, they must be
informed by reason, must be fair, and must not
be arbitrary. This Court finds that the
respondent's action satisfies this test. The
respondent relied on a statutory report, gave
the petitioner an opportunity to respond,
considered the petitioner's reply, and applied
the minimum contractual consequence. This is
not uninformed action.
20.16. This Court is also conscious of the limits of its
jurisdiction under Article 226. This Court does
not sit as an appellate authority over the
respondent's decision. The writ court intervenes
only where the action is arbitrary, mala fide,
based on no evidence, in violation of
fundamental rights or principles of natural
justice, or contrary to a specific statutory
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provision. None of these conditions are satisfied
in the present case.
20.17. This Court further notes that the petitioner has
not alleged mala fides. It has not demonstrated
that the Government Analyst's report is
perverse or fabricated. It has not filed any
challenge to the report under the Drugs and
Cosmetics Act, 1940. Under these
circumstances, there is no basis for this Court
to substitute its assessment for that of the
respondent.
20.18. Accordingly, this court answers Point No. 6 by
holding that the impugned order does not
suffer from arbitrariness, disproportionality,
procedural impropriety, or any other infirmity
warranting interference under Article 226 of the
Constitution of India.
21. Answers to point No. 7: What order?
21.1. In view of the findings recorded on Points 1
through 6, this Court holds as follows:
21.1.1. The impugned order dated 28.03.2025 is
an order of blacklisting passed under
Clause 21.1(g) of the tender conditions
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and not under Rule 26A of the KTPP
Rules.
21.1.2. The respondent was justified in invoking
Clause 21.1(g) on the basis of the
Government Analyst's report and the
petitioner's failure to replace the drugs.
21.1.3. Compliance with the procedural
requirements of Rule 26A, specifically
constitution of a Debarment Committee
and obtaining its written
recommendations, was not mandatory
for an action taken under Clause
21.1(g).
21.1.4. The petitioner was afforded a reasonable
and effective opportunity of hearing
through the replacement notices, show-
cause notice, and consideration of its
reply. The principles of natural justice
were not violated.
21.1.5. The alleged non-furnishing of the
Government Analyst's report and
statutory sample portions by the Drug
Inspectorate does not vitiate the
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respondent's contractual action under
the tender conditions.
21.1.6. The impugned order does not suffer from
arbitrariness, disproportionality,
procedural impropriety, or any other
infirmity warranting interference under
Article 226 of the Constitution of India.
21.2. Accordingly, this court passes the following:
ORDER
(i) Writ Petition is dismissed .
(ii) However, this Court clarifies that this
order does not preclude the petitioner
from pursuing its statutory remedies
under the Drugs and Cosmetics Act,
1940, including challenging the
Government Analyst's report before the
competent authority under the said Act,
if so advised.
Sd/-
(SURAJ GOVINDARAJ)
JUDGE
LN
List No.: 2 Sl No.: 1