No Order Of Blacklisting Can Be Passed Without Issuing A Show Cause Notice To Person Or Company: Karnataka HC

The Karnataka High Court observed that no order of blacklisting can be passed without issuing a show cause notice to anyone, be it a person, firm, or a company.

The Court observed thus in a writ petition preferred by a proprietorship firm named Sujal Pharma which was blacklisted by Karnataka State Medical Supplies Corporation Limited.

A Single Bench of Justice M. Nagaprasanna held, “… no order of blacklisting can be passed without at the outset complying with the principles of natural justice which would be issuing a show cause notice to anyone who is sought to be blacklisted, be it a person or a firm or a Company clearly delineating the reasons for such blacklisting and seeking a reply from the hands of those who are sought to be blacklisted and passing an order either accepting or rejecting the reply of those who are sought to be blacklisted. It is equally settled principles of law that the order of blacklisting cannot be passed on the grounds that were not mentioned in the show cause notice.”

Advocate Prithveesh M.K. appeared on behalf of the petitioner while Advocate Sumana Baliga M. appeared on behalf of the respondent.

Factual Background -

The petitioner was a proprietorship concern engaged in the business of pharmaceutical distribution. During the onset of COVID-19, quotations were invited by the respondent Corporation for supply of 5000 ml cans of Hand Sanitizers. The petitioner as a distributor submitted its quotation for supply of the said quantity of Hand Sanitizers in respect of available quantity of 2000 units at the rate of Rs. 2,500/- per unit inclusive of GST (Goods and Services Tax). The quotation submitted by the petitioner was in respect of Hand Sanitizers manufactured by one M/s Glint Cosmetics Private Limited and thereafter, purchase order was issued by the Corporation to the petitioner for supply of 10,000 quantity of Hand Sanitizers with unit packing of 5000 ml at a price of Rs. 2,500/-. The total value was thus Rs. 2.5 crores and after the nation-wide lock down was relaxed in the month of June 2020, the Corporation required the petitioner to execute an agreement in respect of the aforesaid purchase order.

In compliance with the requirement, the petitioner signed the agreement and received a replacement notice of certain quantities of Hand Sanitizers on the ground that they were declared as not of standard quality. In July 2021, a second replacement notice was received on similar terms like the earlier notice and the petitioner then submitted a representation seeking reports upon which the product was said to be of bad quality. The reports were not furnished. What came about was an order blacklisting several firms including the petitioner. The name of the petitioner was found in the said list for the year 2021-22 in respect of Hand Sanitizers of 5000 ml product. It was this blacklisting due to which the petitioner approached the High Court.

The High Court in the above context of the case said, “If the facts obtaining in the case at hand are considered on the bedrock of the principles laid down by the Apex Court supra, the order of blacklisting on the face of it would become unsustainable.”

The Court took note of the fact that there is no notice to show any cause issued to the petitioner as to why the firm should not be blacklisted and hence, the impugned order comes to the petitioner as a bolt from the blue.

“Such bolt from the blue cannot be sustainable in law unless it is preceded by a notice for such blacklisting. At this juncture the learned counsel for the Corporation submits that the Corporation would now comply with the principles of natural justice by issuing notice and then passing necessary orders. This submission is objected to by the learned counsel for the petitioner as the Hand Sanitizers were supplied on 06-04-2020. The report from the Drugs Control Department is said to have been obtained on 16.04.2021 and replacement notices were issued on 12-07-2021. To-day the matter is taken up in the month of April, 2024 after 4 years having elapsed after such supply. In such circumstances the remand to the concerned to comply with an order is no remedy that the Corporation can seek”, it added.

The Court relied upon the judgment of the Apex Court in the case of Vetindia Pharmaceuticals Limited v. State of Uttar Pradesh (2021) 1 SCC 804 in which the order of blacklisting was found to be unsustainable but due to long passage of time, the court was not inclined to remand the matter to the authorities. The Supreme Court had followed the judgment in the case of Daffodils Pharmaceuticals Limited v. State of U.P. (2020) 18 SCC 550 wherein the blacklisting order was beyond three years and hence, it was not remitted.

“In the light of the issues arising in the case at hand standing answered by the Apex Court which would cover the issue on all fours and the fact that four years have passed by after the supply and the order of blacklisting, I deem it appropriate to give a quietus to the issue and not remit the matter back to the hands of the respondent as the Hand Sanitizers that were supplied have naturally dried up by efflux of time”, it held.

Accordingly, the High Court allowed the writ petition and quashed the order of the respondent Corporation.

Cause Title- M/s. Sujal Pharma v. Karnataka State Medical Supplies Corporation Limited (Neutral Citation: 2024:KHC:15395)

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