Contractual quality testing by approved independent laboratories is valid; resulting NSQ penalties and blacklisting are upheld.

The Uttar Pradesh Medical Supplies Corporation Limited (“UPMSCL”) invited tenders for procurement of Benzyl Benzoate Application 25% w/w, 100 ml bottles.

The petitioners were selected and supplied 14,01,000 bottles valued at approximately ₹1,65,38,525, along with NABL-certified test reports, between 2022 and March 2025.

UPMSCL subsequently alleged that 26 batches were “Not of Standard Quality” (“NSQ”) based on microbial testing conducted by empanelled laboratories and issued a show-cause notice dated 16 July 2025.

After considering the petitioners’ reply, UPMSCL treated the corresponding quantities as non-supply, imposed a 20% penalty and other charges, directed recall and possible destruction of the stock, and blacklisted the petitioners for three years under the tender conditions.

A further show-cause notice dated 31 December 2025 and subsequent proceedings concerning additional batches were also challenged.

The petitioners disputed the requirement and legality of microbial testing, the authority of the empanelled laboratories, and the procedure adopted for sampling and testing.

They also sought release of ₹1,53,91,742.16 allegedly due from UPMSCL.

UPMSCL objected to the writ petition on the basis of the contractual arbitration clause and the exclusive jurisdiction clause conferring jurisdiction on the courts at Lucknow.

Whether UPMSCL was legally entitled under the tender conditions and its Quality Policy to subject the supplied drug batches to confirmatory quality testing through empanelled laboratories and to treat failed batches as NSQ.

Whether microbial-limit testing was applicable to Benzyl Benzoate intended for cutaneous use under the Indian Pharmacopoeia standards.

Whether the testing and sampling procedure was invalid because the samples were not collected by Drug Inspectors or tested by Government Analysts under Sections 20 and 23 of the Drugs and Cosmetics Act, 1940, and the corresponding provisions of the Drugs and Cosmetics Rules, 1945.

Whether the impugned show-cause notices, quality-related penalties, recall/destruction directions, and three-year blacklisting were liable to be interfered with in writ jurisdiction.

Whether the writ petition was maintainable before the Calcutta High Court despite the contractual arbitration clause and the stipulation that the seat of arbitration and exclusive courts would be at Lucknow.

The Court applied the tender conditions, particularly Conditions 11(v)–(vii), which treated quantities corresponding to NSQ batches as non-supply, authorised a 20% penalty, required recall of NSQ goods, permitted demurrage and destruction charges, and made the Tender Inviting Authority’s quality decision final and binding.

Condition 13(i) authorised three-year blacklisting where two batches of a drug supplied by a company were found NSQ.

The Court relied on the Drugs and Cosmetics Act, 1940, and the Drugs and Cosmetics Rules, 1945, including the amended Rules 150B, 150C and 150E, which permit testing for procurement agencies through approved or licensed laboratories and issuance of reports in Form 39A.

It also applied the Indian Pharmacopoeia standards, including General Chapter 2.2.9 concerning microbial contamination in non-sterile products; the Indian Pharmacopoeia Commission clarified that cutaneous Benzyl Benzoate preparations are subject to specified microbial limits and absence of Staphylococcus aureus and Pseudomonas aeruginosa.

The Court further considered the contractual arbitration and jurisdiction clause providing for arbitration seated at Lucknow and exclusive jurisdiction of Lucknow courts.

The Court held that the tender conditions expressly subjected all drug batches to confirmatory testing under UPMSCL’s Quality Policy, which authorised testing through empanelled laboratories.

The laboratories used by UPMSCL were stated to be licensed and NABL-accredited at the relevant time.

The Court rejected the challenge to the masking and randomisation procedure because the Quality Policy permitted the manufacturer’s identity and batch number to be concealed and replaced with a traceable system-generated code before dispatch to the laboratory, thereby promoting impartiality.

It also rejected the contention that only Drug Inspectors or Government Analysts could conduct legally valid testing, noting the post-amendment framework permitting procurement agencies to use approved independent laboratories and Form 39A reports.

The petitioners’ reliance on the West Bengal RTI response was not accepted as determinative; the Indian Pharmacopoeia Commission’s clarification confirmed that microbial limits applied to Benzyl Benzoate intended for cutaneous use.

Since the batches were tested, declared NSQ, and the petitioners’ reply was considered before the order dated 26 August 2025 was passed, the Court found no procedural or substantive illegality warranting writ interference.

The objection based on arbitration and Lucknow jurisdiction was also rejected because substantial elements of the cause of action arose in Kolkata: the petitioners’ registered office was there, the LOI was received there, the agreement was executed and notarised there, the performance bank guarantee was arranged there, and correspondence was addressed there.

The consequential treatment of the quantities as non-supply, imposition of contractual penalties and charges, recall/destruction directions, and blacklisting were therefore not interfered with.

The preliminary objections concerning arbitration and territorial jurisdiction were rejected.

W.P.A. No. 3159 of 2026 was dismissed, and no direction was issued for release of the claimed amount of ₹1,53,91,742.16.