Drug supplier’s blacklisting quashed after authorities failed to arrange mandatory retesting before medicine batches expired

The appellant supplied Ascorbic Acid and Ethambutol tablets to Government hospitals under contracts with M.P. Public Health Services Corporation Limited.

After four batches were declared Not of Standard Quality (NSQ), the Corporation issued a show-cause notice and, by orders dated 30 September and 1 October 2024, directed recovery of the batch values and blacklisted the firm for three years and debarred one product for two years.

The High Court found that the tender’s prescribed procedure for a second sample and testing by another laboratory had not been followed, but made the blacklisting orders’ continuance conditional on fresh testing.

No fresh testing occurred before the batches expired; the High Court nevertheless maintained its directions on review.

1. Whether blacklisting and debarment based on the initial NSQ reports could stand when the authority had not followed the tender’s mandatory procedure for drawing and testing a second sample.

2. Whether the adverse orders could be sustained after the failure to conduct the directed retesting deprived the appellant of an effective opportunity to challenge the reports and the samples had expired.

Clause 6 of Annexure IX to the tender required that, after an initial NSQ result, another sample from the same batch be sent to a second laboratory; blacklisting could follow upon confirmation, with specified procedures for contradictory reports.

Sections 25(3) and 25(4) of the Drugs and Cosmetics Act, 1940 recognise an opportunity to controvert an analyst’s report through further examination of the sample.

In Medipol Pharmaceutical India Pvt. Ltd. v. Post Graduate Institute of Medical Education & Research, drawing on Medicamen Biotech Ltd. v. Rubina Bose, Drug Inspector and Laborate Pharmaceuticals India Ltd. v. State of Tamil Nadu, the Court held that where delay attributable predominantly to the State or its instrumentalities destroys an effective opportunity for superior-laboratory testing, adverse action founded on the disputed analysis cannot be sustained.

The Corporation imposed punitive measures without complying with the tender’s express requirement to obtain confirmatory testing of a second sample.

Although the High Court directed fresh testing within 15 days, that direction remained unimplemented for more than six months, and all four batches had expired by the time the Supreme Court considered the matter.

The resulting loss of an effective opportunity to contest the reports was attributable to the failure to carry out the prescribed and directed procedure.

Applying the principle in Medipol, the Court held that the respondents could not sustain blacklisting and debarment on the basis of reports the appellant had been deprived of an effective opportunity to controvert.

It quashed the competent authority’s orders dated 30 September and 1 October 2024 and set aside the High Court’s orders to the extent that they declined to quash those orders and made their continuation contingent on retesting.

The appeals were allowed.