Contractual blacklisting for quality failure is independent of statutory debarment procedures and Drugs and Cosmetics Act remedies.

The Petitioner, a pharmaceutical company, was awarded a tender by the Respondent (KSMSCL) for the supply of iron tablets

Following delivery, the Drug Inspectorate tested samples and issued a "Not of Standard Quality" (NSQ) report

The Respondent issued multiple replacement notices, which the Petitioner failed to comply with, citing non-receipt of the test report and statutory samples from the Drug Inspectorate

Consequently, the Respondent issued a show-cause notice and subsequently passed an order dated March 28, 2025, blacklisting the particular drug for three years

The Petitioner challenged this order under Article 226, alleging violation of the Karnataka Transparency in Public Procurements (KTPP) Rules and principles of natural justice

1. Whether the blacklisting order was passed under Rule 26A of the KTPP Rules or in exercise of contractual powers under Clause 21.1(g) of the tender

2. Whether compliance with the procedure under Rule 26A, including a Debarment Committee and oral hearing, was mandatory

3. Whether the Petitioner was denied an effective opportunity of hearing in violation of natural justice due to the non-furnishing of the test report

4. Whether the three-year blacklisting was arbitrary or disproportionate

Rule 26A of the KTPP Rules, 2000, which governs debarment for "corrupt or fraudulent practices"

Clause 21.1(g) of the tender conditions, which permits blacklisting for quality failure in laboratory tests

Erusian Equipment and Chemicals Ltd. v. State of West Bengal (obligation of objective satisfaction/fair play)

Kulja Industries Ltd. v. BSNL (test of fairness and proportionality)

Daffodils Pharmaceutics Ltd. v. State of UP (minimum opportunity of hearing)

Isolators and Isolators v. MPMPKVV Co. Ltd. (requirement of particularised show-cause notice)

The Court determined that Rule 26A of the KTPP Rules and Clause 21.1(g) of the tender operate in distinct spheres; the former addresses fraudulent conduct, while the latter addresses technical quality failures

Since the Respondent invoked the contractual clause, the specific statutory procedures of Rule 26A (Debarment Committee/Written Recommendations) were not mandatory

On natural justice, the court reasoned that while the Petitioner did not receive the full report, they were notified of the NSQ status via multiple notices and a specific show-cause notice, and they submitted a detailed written reply

The Court found that "fairness" does not always mandate an oral hearing in contractual matters if the party understands the case against them

The non-furnishing of samples was deemed a grievance against the Drug Inspectorate, not the Respondent, who was entitled to rely on the statutory report until set aside

Finally, the three-year period was held proportionate as it was the contractually agreed minimum and served the legitimate aim of protecting public health

The Writ Petition was dismissed. However, the Court clarified that the Petitioner remains at liberty to challenge the Government Analyst's report before the competent statutory authority under the Drugs and Cosmetics Act, 1940