VETINDIA PHARMACEUTICALS LIMITED versus STATE OF UTTAR PRADESH AND ANOTHER

VETINDIA PHARMACEUTICALS LIMITED

STATE OF UTTAR PRADESH AND ANOTHER

(Civil Appeal No. 3647 of 2020)

NOVEMBER 06, 2020

[R. F. NARIMAN, NAVIN SINHA ANDKRISHNA MURARI, JJ.]

Drugs:

Blacklisting of drug – Propriety of – Drug in questionmanufactured by appellant-company (a valid licence-holder) –Supplied to respondent-State – By supplier as per Tender –Order of Blacklisting of the drug was served by the State to themanufacturing company, in terms of Tender clauses – Writ petition– Dismissed in limine on the ground of 10 years delay in filing thepetition – Appeal to Supreme Court – Held: In absence of any supplyby the manufacturing company, the order of blacklisting invokingTender clauses is fundamental flaw and hence not sustainable –An order of blacklisting beyond 3 years or maximum 5 years is notjustified – As the manufacturing company had been pursuing thematter with the Authorities, the Writ Petition was not barred byunexplained delay – Delay.

Limitation:

Limitation period – For filing writ petition – Held: High Courtmay decline to exercise its discretionary writ jurisdiction, on theground of delay – But it is only rule of discretion and not amandatory requirement – Limitation Act stricto sensu does not applyto writ jurisdiction – Therefore, such discretion has to be judiciousexercised – Constitution of India – Art. 226 – Limitation Act, 1963– Delay.

Allowing the appeal, the Court

HELD: 1.1 There is no dispute that the injection was notsupplied to the respondents by the appellant. Yet the show causenotice dated 21.10.2008 referred to further action in terms of theTender for supplying misbranded medicine to the respondent.

AFurthermore, the show cause notice did not state that action byblacklisting was to be taken, or was under contemplation. It onlymentioned appropriate action in accordance with the rules of theTender. The fact that the terms of the tender may have providedfor blacklisting is irrelevant in the facts of the case. In absence ofany supply by the appellant, the order of blacklisting datedB08.09.2009 invoking Clauses 8.12 and 8.23 of the Tender is afundamental flaw, vitiating the impugned order on the face of itreflecting non application of mind to the issues involved. Evenafter the appellant brought this fact to the attention of therespondents, they refused to pay any heed to it. Further, itCspecifies no duration for the same. [Para 9][613-C-E]

1.2 An order of permanent debarment is unjustified. Anorder of blacklisting beyond 3 years or maximum 5 years isdisproportionate. An order of blacklisting operates to theprejudice of commercial person not only in praesenti but alsoDputs taint which attaches far beyond and may well spell the deathknell of the organisation/institution for all times to come describedas civil death. The repercussions on the appellant were clearlyspelt out by it in the representations as also in the writ petition,including the consequences under the Rajasthan tender, whereit stood debarred expressly because of the present impugnedEorder. The possibility always remains that if proper show causenotice had been given and the reply furnished would have beenconsidered in accordance with law, even if the respondentsdecided to blacklist the appellant, entirely different considerationsmay have prevailed in their minds especially with regard to theFduration. [Para 13][616-A-C]

Kulja Industries Limited v. Chief General Manager,Western Telecom Project Bharat Sanchar Nigam Limitedand Others (2014) 14 SCC 731 : [2013] 14 SCR 430;M/s Daffodills Pharmaceuticals Ltd. & Anr. v. State ofGU.P. & Anr. 2019 (17) SCALE 758 – relied on.

1.3 If the respondents had expressed their mind in the showcause notice to blacklist, the appellant could have filed anappropriate response to the same. The insistence of therespondents to support the impugned order by reference to the

terms of the tender cannot cure the illegality in absence of theappellant being successful tenderer and supplier. Thereforethe order of blacklisting dated 08.09.2009 stands vitiated fromthe very inception on more than one ground and meritsinterference. [Para 12][615-F-G]

M/s. Erusian Equipment & Chemicals Ltd. v. State ofWest Bengal and Another (1975) 1 SCC 70 : [1975] 2SCR 674; Joseph Vilangandan v. The ExecutiveEngineer, (PWD), Ernakulam and Others (1978) 3 SCC36 : [1978] 3 SCR 514; Gorkha Security Services v.Government (NCT of Delhi) & Ors. (2014) 9 SCC 105:[2014] 13 SCR 617 – relied on.

2.1 There is no doubt that the High Court in its discretionaryjurisdiction may decline to exercise the discretionary writjurisdiction on ground of delay in approaching the court. But it isonly rule of discretion by exercise of self-restraint evolved bythe court in exercise of the discretionary equitable jurisdictionand not mandatory requirement that every delayed petition mustbe dismissed on the ground of delay. The Limitation Act strictosensu does not apply to the writ jurisdiction. The discretion vestedin the court under Article 226 of the Constitution therefore hasto be judicious exercise of the discretion after considering allpros and cons of the matter, including the nature of the dispute,the explanation for the delay, whether any third-party rights haveintervened etc. The jurisdiction under Article 226 being equitablein nature, questions of proportionality in considering whether theimpugned order merits interference or not in exercise of thediscretionary jurisdiction will also arise. [Para 14][616-H; 617-A-C]

Basanti Prasad v. Bihar School Examination Board andOthers (2009) 6 SCC 791 : [2009] 9 SCR 367; MoonMills Ltd. v. Industrial Court AIR 1967 SC 1450;Maharashtra SRTC v. Balwant Regular Motor ServiceAIR 1969 SC 329: [1969] 1 SCR 808; State of M.P.and Others v. Nandlal Jaiswal and Others, (1986) 4SCC 566 : [1987] 1 SCR 1 – relied on.

2.2 The contention of the respondents that they have actedin accordance with the provisions of the Drugs Act pursuant to

Athe report of the analyst for misbranded product under Section 9is devoid of substance and merits no consideration. It is not thecase of the respondents that the procedure prescribed underSections 23, 25 and 26 of the Drug Act has been followed. Thefeeble attempt to show compliance with provisions of the DrugsAct by alleged purchase of the samples under Form 14A atBAnnexure R-5 to the counter affidavit dated 21.07.2008 from anunknown source and date must be rejected outright as an attemptto create evidence where none exists. [Para 15][617-G-H; 618-A]

2.3 The writ petition was not barred by unexplained delayCas the appellant had been pursuing the matter with the authoritiesand it is they who sat over it, triggering rejection of appellantstender by the Rajasthan Government on 05.07.2019 leading tothe institution of the writ petition on 24.07.2019. The High Courttherefore erred in dismissing the writ petition on grounds of delay.DThe illegality and the disproportionate nature of the order dated08.09.2009, with no third party rights affected, never engagedthe attention of the High Court in judicious exercise of thediscretionary equitable jurisdiction. Consequently, the impugnedorder of the High Court as well as order dated 08.09.2009 of therespondents are set aside. [Para 16][618-B-D]E

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3647of 2020.

VETINDIA PHARMACEUTICALS LIMITED v. STATE OFUTTAR PRADESH AND ANOTHER

From the Judgment and Order dated 25.07.2019 of the High Courtof Judicature at Allahabad, Allahabad Bench in Writ – No. 24253 of2019.

Ms. Shobha Gupta, Ms. Prachi Apte, Ankit Goel, Abhinav Kaushik,

R. K. Gupta, Advs. for the appearing parties.

The Judgment of the Court was delivered by

NAVIN SINHA, J.

1. Leave granted.

2. The appellant is aggrieved by indefinite order of blacklistingdated 08.09.2009. The High Court dismissed the writ petition in limine,only on the ground of delay, as having been preferred ten years later.

3. Ms. Shobha Gupta, learned counsel for the appellant, submitsthat it holds valid licence under the Drugs and Cosmetics Act, 1940(hereinafter referred to as ‘the Drugs Act’) in Form 28 (Rule 76) issuedby the Drugs Control Administration, Government of Andhra Pradesh.M/s Palak Pharmaceuticals Private Limited had obtained supplies fromthe appellant in the year 2007, and in turn had supplied it to the respondentunder tender notice dated 04.10.2006. The brand name of the medicinewas correctly mentioned as “OXY-125”. The composition of the medicinewas also correctly mentioned as “Oxytetracycline HCL IP Vet 125 mg”.The generic term “Hcl” was only missing on the label, and it was writtenas “OXYTETRACYCLINE INJ. I.P. VET” in place of“OXYTETRACYCLINE HCL INJ. I.P. VET”. It was therefore caseof bonafide inadvertent printing error which resulted in misbranding. Theproduct was not substandard or spuriousveterinary medicine.

4. The appellant was served with an order of blacklisting dated08.09.2009 by the Office of Director, Animal Husbandry Department ofthe respondent referring to the State Analyst report dated 10.10.2008,declaring the batch supplied by the appellant to be of substandard quality(misbranded/not in accordance with Oxytetracycline injection), thusviolating clauses 8.12 and 8.23 of the Tender of 2006-07. The appellantinformed the respondents that it had never made any supplies to themunder the Tender in question. The misbranding referred to was aninadvertent error. The respondents required certain further clarificationswhich were furnished on 04.05.2019 but to no outcome. The order ofblacklisting is causing great prejudice to the appellant preventing it from

Aparticipating in similar tenders, the most recent being the rejection by theGovernment of Rajasthan dated 05.07.2019 for the said reason. Noproceedings were taken out by the respondents against the appellantunder Sections 23, 25, 26 and 27 of the Drugs Act.

5. The explanation furnished for the delay in the writ petition hasBnot been considered properly. The order of blacklisting being in violationof the principles of natural justice, delay is irrelevant and the cause ofaction continues because of its indefinite nature and consequences.Learned counsel has relied heavily on Gorkha Security Services vs.Government (NCT of Delhi) & Ors., (2014) 9 SCC 105, to submit thatthe show cause notice dated 21.10.2008 did not meet the requirement ofCthe law. She has further relied upon M/s Daffodills PharmaceuticalsLtd. & Anr. vs. State of U.P. & Anr., 2019 (17) SCALE 758,where thisCourt opined that debarment of approximately four years wassufficient.

6. Shri Ankit Goel, learned counsel for the respondents, submitsDthat the writ petition was rightly dismissed on grounds of gross andinordinate delay of ten years in challenging the order of blacklisting. Itwas preceded by show cause notice dated 21.10.2008, andconsideration of the reply submitted. The veterinary medicine wasmisbranded in terms of Section 9 of the Drugs Act, duly supported byEthe report of the analyst. Any latent defect in the show cause notice hasnot caused any prejudice to the appellant. The impugned orders thereforemerit no interference.

7. We have considered the submissions on behalf of the partiesand are satisfied that the writ petition deserves to be allowed for morethan one reason.F

8. The appellant is licensed drug manufacturer. The drugs inquestion have been found to be misbranded and not spurious or adulterated.The appellant took the plea of bonafide inadvertent printing error onthe label, by stating “OXYTETRACYCLINE INJ. I.P. VET” in placeGof “OXYTETRACYCLINE HCL INJ. I.P. VET”. This explanation bythe appellant dated 15.11.2008 in reply to the show cause notice finds noconsideration by the respondents at any stage. The appellant initiallysought to purse matters with the respondents. On 19.05.2011, the appellantrequested the respondents for allowing it to participate in further tendersfor 2011-2012. The matter was also subsequently followed up by theH

appellants in writing with the respondents. On 01.05.2019, the appellantagain requested to withdraw the order dated 08.09.2009. The respondentson 03.05.2019 rejected the request of the appellant reiterating violationof clauses 8.12 and 8.23 of the Tender of 2006-07. It however soughtcertain additional information to consider the representation of theappellant which was submitted on 04.05.2019. The appellant was alsodebarred from consideration by the State of Rajasthan on 05.07.2019 byreason of the impugned order of blacklisting. In absence of any responsethereafter from the respondents, the writ petition came to be instituted.

9. There is no dispute that the injection was not supplied to therespondents by the appellant. Yet the show cause notice dated 21.10.2008referred to further action in terms of the Tender for supplying misbrandedmedicine to the respondent. Furthermore, the show cause notice did notstate that action by blacklisting was to be taken, or was undercontemplation. It only mentioned appropriate action in accordance withthe rules of the Tender. The fact that the terms of the tender may haveprovided for blacklisting is irrelevant in the facts of the case. In absenceof any supply by the appellant, the order of blacklisting dated 08.09.2009invoking clauses 8.12 and 8.23 of the Tender is fundamental flaw,vitiating the impugned order on the face of it reflecting non applicationof mind to the issues involved. Even after the appellant brought this factto the attention of the respondents, they refused to pay any heed to it.Further, it specifies no duration for the same.

10. M/s. Erusian Equipment & Chemicals Ltd. vs. State ofWest Bengal and another, (1975) 1 SCC 70, held that there could notbe arbitrary blacklisting and that too in violation of the principles of naturaljustice. In Joseph Vilangandan vs. The Executive Engineer, (PWD),Ernakulam and others, (1978) 3 SCC 36, this Court was considering ashow cause notice as follows:

“17. ….”You are therefore requested to show cause ... why thework may not be arranged otherwise at your risk and loss, throughother agencies after debarring you as defaulter....”

The crucial words are those that have been underlined (herein initalics). They take their colour from the context. Construed along withthe links of the sentence which precede and succeed them, the words“debarring you as defaulter”, could be understood as conveying nomore than that an action with reference to the contract in question, only,

Awas under contemplation. There are no words in the notice which couldgive clear intimation to the addressee that it was proposed to debarhim from taking any contract, whatever, in future under theDepartment.…”

11. The question whether show cause notice prior to blacklistingBmandates express communication why blacklisting be not ordered orwas in contemplation of the authorities, this Court in Gorkha SecurityServices (supra) held as follows:-

“27. We are, therefore, of the opinion that it was incumbent onthe part of the Department to state in the show-cause notice thatCthe competent authority intended to impose such penalty ofblacklisting, so as to provide adequate and meaningful opportunityto the appellant to show cause against the same. However, wemay also add that even if it is not mentioned specifically but fromthe reading of the show-cause notice, it can be clearly inferredthat such an action was proposed, that would fulfil this requirement.DIn the present case, however, reading of the show-cause noticedoes not suggest that noticee could find out that such an actioncould also be taken. We say so for the reasons that are recordedhereinafter.

28. In the instant case, no doubt the show-cause notice datedE6-2-2013 was served upon the appellant. Relevant portion thereofhas already been extracted above (see para 5). This show-causenotice is conspicuously silent about the blacklisting action. On thecontrary, after stating in detail the nature of alleged defaults andbreaches of the agreement committed by the appellant the noticeFspecifically mentions that because of the said defaults the appellantwas “as such liable to be levied the cost accordingly”. It furthersays “why the action as mentioned above may not be taken againstthe firm, besides other action as deemed fit by the competentauthority”. It follows from the above that main action which therespondents wanted to take was to levy the cost. No doubt, theGnotice further mentions that the competent authority could takeother actions as deemed fit. However, that may not fulfil therequirement of putting the defaulter to the notice that action ofblacklisting was also in the mind of the competent authority. Mereexistence of Clause 27 in the agreement entered into between theHparties, would not suffice the aforesaid mandatory requirement

by vaguely mentioning other “actions as deemed fit”. As alreadypointed out above insofar as penalty of blacklisting and forfeitureof earnest money/security deposit is concerned it can be imposedonly, “if so warranted”. Therefore, without any specific stipulationin this behalf, the respondent could not have imposed the penaltyof blacklisting.

xxxxxxx

33. When we apply the ratio of the aforesaid judgment to thefacts of the present case, it becomes difficult to accept theargument of the learned Additional Solicitor General. In the firstinstance, we may point out that no such case was set up by therespondents that by omitting to state the proposed action ofblacklisting the appellant in the show-cause notice, has not causedany prejudice to the appellant. Moreover, had the action ofblacklisting being specifically proposed in the show-cause notice,the appellant could have mentioned as to why such extreme penaltyis not justified. It could have come out with extenuatingcircumstances defending such an action even if the defaults werethere and the Department was not satisfied with the explanationqua the defaults. It could have even pleaded with the Departmentnot to blacklist the appellant or do it for lesser period in case theDepartment still wanted to blacklist the appellant. Therefore, it isnot at all acceptable that non-mentioning of proposed blacklistingin the show-cause notice has not caused any prejudice to theappellant. This apart, the extreme nature of such harsh penaltylike blacklisting with severe consequences, would itself amount tocausing prejudice to the appellant.”12. If the respondents had expressed their mind in the show causenotice to blacklist, the appellant could have filed an appropriate responseto the same. The insistence of the respondents to support the impugnedorder by reference to the terms of the tender cannot cure the illegality inabsence of the appellant being successful tenderer and supplier. Wetherefore hold that the order of blacklisting dated 08.09.2009 standsvitiated from the very inception on more than one ground and meritsinterference.

13. In view of the aforesaid conclusion, there may have been noneed to go into the question of the duration of the blacklisting, but for the

Aarguments addressed before us. An order of blacklisting operates to theprejudice of commercial person not only inpraesenti but also puts ataint which attaches far beyond and may well spell the death knell of theorganisation/institution for all times to come described as civil death.The repercussions on the appellant were clearly spelt out by it in therepresentations as also in the writ petition, including the consequencesBunder the Rajasthan tender, where it stood debarred expressly becauseof the present impugned order. The possibility always remains that if aproper show cause notice had been given and the reply furnished wouldhave been considered in accordance with law, even if the respondentsdecided to blacklist the appellant, entirely different considerations mayChave prevailed in their minds especially with regard to the duration. Thiscourt in Kulja Industries Limited vs. Chief General Manager, WesternTelecom Project Bharat Sanchar Nigam Limited and others, (2014)14 SCC 731, despite declining to interfere with an order of blacklisting,but noticing that an order of permanent debarment was unjustified,observed: -D“28.2. Secondly, because while determining the period for whichthe blacklisting should be effective the respondent Corporationmay for the sake of objectivity and transparency formulate broadguidelines to be followed in such cases. Different periods ofdebarment depending upon the gravity of the offences, violationsEand breaches may be prescribed by such guidelines. While it maynot be possible to exhaustively enumerate all types of offencesand acts of misdemeanour, or violations of contractual obligationsby contractor, the respondent Corporation may do so as far aspossible to reduce if not totally eliminate arbitrariness in the exerciseFof the power vested in it and inspire confidence in the fairness ofthe order which the competent authority may pass against adefaulting contractor.”

Since the order of blacklisting has been found to be unsustainableby us, and considering the long passage of time, we are not inclined toGremand the matter to the authorities. In M/s Daffodills Pharmaceuticals(supra), relied upon by the appellant, this court has observed that anorder of blacklisting beyond 3 years or maximum of 5 years wasdisproportionate.

14. That brings us to the question of delay. There is no doubt thatHthe High Court in its discretionary jurisdiction may decline to exercise

the discretionary writ jurisdiction on ground of delay in approaching thecourt. But it is only rule of discretion by exercise of self-restraintevolved by the court in exercise of the discretionary equitable jurisdictionand not mandatory requirement that every delayed petition must bedismissed on the ground of delay. The Limitation Act stricto sensu doesnot apply to the writ jurisdiction. The discretion vested in the court underArticle 226 of the Constitution therefore has to be judicious exerciseof the discretion after considering all pros and cons of the matter, includingthe nature of the dispute, the explanation for the delay, whether anythird-party rights have intervened etc. The jurisdiction under Article 226being equitable in nature, questions of proportionality in consideringwhether the impugned order merits interference or not in exercise of thediscretionary jurisdiction will also arise. This Court in Basanti Prasadvs. Bihar School Examination Board and others, (2009) 6 SCC 791,after referring to Moon Mills Ltd. vs. Industrial Court, AIR 1967 SC1450, Maharashtra SRTC vs. Balwant Regular Motor Service, AIR1969 SC 329 and State of M.P. and Others vs. Nandlal Jaiswal andothers, (1986) 4 SCC 566, held that if the delay is properly explainedand no third party rights are being affected, the writ court under Article226 of the Constitution may condone the delay, holding as follows:

“18. In the normal course, we would not have taken exception tothe order passed by the High Court. They are justified in sayingthat delinquent employee should not be permitted to revive thestale claim and the High Court in exercise of its discretion wouldnot ordinarily assist the tardy and indolent person. This is thetraditional view and is well supported by plethora of decisions ofthis Court. This Court also has taken the view that there is noinviolable rule, that, whenever there is delay the Court must refuseto entertain petition. This Court has stated that the writ court inexercise of its extraordinary jurisdiction under Article 226 of theConstitution may condone the delay in filing the petition, if thedelay is satisfactorily explained.”

15. The contention of the respondents that they have acted inaccordance with the provisions of the Drugs Act pursuant to the reportof the analyst for misbranded product under Section 9 is devoid ofsubstance and merits no consideration. It is not the case of the respondentsthat the procedure prescribed under Sections 23, 25 and 26 of the DrugAct has been followed. The feeble attempt to show compliance with

Aprovisions of the Drugs Act by alleged purchase of the samples underForm 14A at Annexure R-5 to the counter affidavit dated 21.07.2008from an unknown source and date must be rejected outright as an attemptto create evidence where none exists.

16. The aforesaid discussion, therefore, leads us to the conclusionBthat the writ petition was not barred by unexplained delay as the appellanthad been pursuing the matter with the authorities and it is they who satover it, triggering rejection of appellants tender by the RajasthanGovernment on 05.07.2019 leading to the institution of the writ petitionon 24.07.2019. The High Court therefore erred in dismissing the writpetition on grounds of delay. The illegality and the disproportionate natureCof the order dated 08.09.2009, with no third party rights affected, neverengaged the attention of the High Court in judicious exercise of thediscretionary equitable jurisdiction. Consequently, the impugned order ofthe High Court as well as order dated 08.09.2009 of the respondents areset aside, and the appeal is allowed.

Kalpana K. Tripathy

Appeal allowed.