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M/s. Hindustan Laboratories v/s Haryana Medical Services Corporation Limited

    Civil Writ Petition No. 27968 of 2017 (O&M)

    Decided On, 16 February 2018

    At, High Court of Punjab and Haryana

    By, THE HONOURABLE CHIEF JUSTICE MR. S.J. VAZIFDAR & THE HONOURABLE MR. JUSTICE AVNEESH JHINGAN

    For the Petitioners: Rakesh Gupta, Advocate. For the Respondent: Kuldeep Tiwari, Advocate.



Judgment Text

S.J. Vazifdar, CJ.

Oral

1. The petitioners have challenged an order dated 20.11.2017 whereby in respect of one out of several drugs the rate contract has been cancelled and the petitioners have been debarred from providing the same for a period of three years.

2. The petitioners have laboured at some length to establish their qualifications and expertise in manufacturing pharmaceutical products. The respondent has fairly not denied the same. The petitioners are a WHO GMP (Goods Manufacturing Practices) certified organisation and have been in this industry for several decades. The petitioners have the necessary licences. As the respondent has fairly not denied the same, it is not necessary to dwell on this aspect in any detail.

3. The respondent floated a tender for the supply of various drugs. The petitioners were awarded a rate contract dated 08.08.2016 for the supply of certain medicines and medical consumables for a period of two years. Clauses 7.12 and 7.13 of the terms and conditions of the tender, which admittedly are applicable between the parties, in so far as they are relevant, read as under:-

"7.12. QUALITY TESTING: 7.12.1 The supplies should be accompanied with in-house test report. After the receipt of the consignment, the department will draw a sample out of each batch and will send it for testing at one of the Govt. approved testing laboratories empanelled with HMSCL. In case of vaccines, biological, sera, blood products, these are tested by Government Laboratories before release so regular testing is not required if the product is accompanied by test result of a Government Laboratory. However random sampling will be done from time to time.

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7.13. LIQUIDATED DAMAGES AND OTHER PENALTIES:

7.13.1. DELAYED/ NON-SUPPLY: For items not requiring sterility testing, penalty will be charged at the rate of 0.5% per day of the unexecuted order after 60 days till 75th day. After 75th day, the order shall stand cancelled automatically after levying penalty @20% on the value of unexecuted order and such penalty will be recovered from any amount payable to the supplier.

Similarly for items requiring sterility testing, penalty will be charged at the rate of 0.5% per day of the unexecuted order after 75 days till 90th day. After 90th day, the order shall stand cancelled automatically after levying penalty @ 20% on the value of unexecuted Page 51 of 84 order and such penalty will be recovered from any amount payable to the supplier.

For more than two instances of non-supply the RC will be cancelled and firm will be debarred for three years to participate in tendering process for all products.

7.13.2. QUALITY FAILURE: If any store/stores supplied against this Rate Contract are found to be Not of Standard Quality (NSQ) on test analysis from Government or Government approved laboratory empanelled with HMSCL and/or on inspection by competent authority, the firm will be liable to replace/resupply the entire quantity of failed batch irrespective of fact that part or whole of the supplied stores may have been consumed the department/HMSCL would have all the rights deduct the amount from any of the past or present liability. For more than two instances of quality failure the RC will be cancelled and firm will be debarred for three years to participate in tendering process for that particular item. If more than three products of a firm are debarred/ blacklisted, the firm will not be eligible to participate in the tendering process of Haryana for next three years for any item.

In case of immunological agents, firms will be debarred to participate in the tender for five years, for that particular immunological agent if there is a batch failure/substandard report from any authorized testing laboratory. Five years would be counted from the date of such report.

If the firm fails to replace the batch declared to be Not of Standard Quality, the department/HMSCL will be at liberty for risk purchase from any approved source as per drug policy or local market at risk and the same will be recovered from the firm.

If the firm fails to replace the batch declared to be Not of Standard Quality on two instances, the firm will be debarred for three years to participate in tendering process for that particular time."

4. The rate contract was in respect of five different drugs. Pursuant to the rate contract, the respondent placed a purchase order dated 24.08.2016 for some of the products. The petitioners claim to have tested these drugs themselves before supplying the same. According to the petitioners, the products matched the pharmacopeia standard IP 2014 based on the in-house tests conducted on them. The respondent, however, by a letter dated 08.12.2016, informed the petitioners that five samples of one of the drugs pertaining to five separate batches had failed the quality test and called upon the petitioners to replace the same. The petitioners, by their letter dated 09.12.2016, stated that they had their plant re-analyse the controlled samples and requested the respondent for the reports in respects of the samples. A reminder to this effect dated 19.12.2016 was also sent by the petitioners. The respondent also forwarded a copy of the report. The petitioners, by their letter dated 20.12.2016, stated that the results of the re-analysed samples established that the products met the requirements. The petitioners requested the respondent to re-analyse the batches in a Government laboratory. The respondent, however, did not do so. According to the petitioners, in order to avoid any confrontation, they replaced the consignment.

5. The respondent thereafter placed another purchase order dated 16.05.2017 in respect of the same drug. The petitioners supplied the same. The respondent, by a letter dated 07.09.2017 once again informed the petitioners that samples with respect to three batches had failed to meet the parameters. The report of the laboratory in this regard was also forwarded. The petitioners, by their letter dated 09.09.2017, requested the respondent to stop the use of the said drug and to return the same. The petitioners also forwarded their in-house quality check reports indicating that there was no infirmity in the quality of the products. The petitioners, by a letter dated 15.09.2017 assured the respondent that they would replace the stock within sixty days. They further stated that they had checked controlled samples for analysis and the results indicated that there was no infirmity in the products. On behalf of the petitioners, considerable reliance was placed on the statement in the letter that the petitioners had sent the samples to a Government approved NABL public testing laboratory for analysis and that the report when received would be forwarded to the respondent. By a civil miscellaneous application, the petitioners placed on record the report which was received from Manisha Analytical Laboratories Private Limited which indicated that the products met the required specifications/quality standards. It is important to note at this stage itself that this laboratory although a Government approved laboratory, is not the Government empanelled laboratory as required under the above terms and conditions.

6. As the products did not meet the requirement on two occasions, the respondent, by a letter dated 22.09.2017, called upon the petitioners to show cause why penal action ought not be taken against them for debarring the petitioners for three years from participating in the tender process "for that particular item". Action, therefore, was proposed to be taken only in respect of one out of the five drugs. The petitioners, by their letter dated 06.10.2017 responded to the show cause notice. The respondent, however, by the impugned order dated 20.11.2017 cancelled the rate contract in respect of the drug which was found to be defective with immediate effect and barred the petitioners for a period of three years from participating in tenders of the respondent for that particular drug only.

7. As we mentioned at the outset, the respondent had fairly not questioned the petitioners' expertise and their ability to supply drugs of the requisite quality and standard generally. The impugned action is only in respect of one out of the five drugs for which the rate contract had been issued in favour of the petitioners. This itself establishes that the respondent has not commented adversely upon the petitioners' general ability and expertise. There are no allegations of mala fides against the petitioners. Nor are there any allegations of the petitioners' inability to perform their contractual obligations by supplying drugs of the requisite quality and standard normally and generally. We do not read the impugned order, therefore, as one blacklisting the petitioners. Had that been so, the respondent would have debarred the petitioners from supplying any products. The above clauses are for the respondent's convenience obviating the necessity of their office repeatedly conducting tests for batches of products found to be not of the requisite quality more than once.

8. Mr. Rakesh Gupta, the learned counsel appearing on behalf of the petitioners, requested us to forward the samples to a

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Government laboratory and not merely to a Government approved laboratory. This request indeed was made by the petitioners from the beginning. As the respondent does not consider the petitioners' to be an undesirable party to deal with generally, we are certain that the respondent would accede to this request so that there is no room for grievance. This, however, is provided that appropriate and adequate samples are still available to carry out the tests. The validity of the reports which have already been made and the reports which may hereafter be made cannot be determined in this petition under Article 226 of the Constitution of India. For such disputes, the petitioners must be relegated to any other appropriate remedy. There is an arbitration clause in the agreement. The petitioners can always seek even interim reliefs in proceedings either under the Arbitration and Conciliation Act, 1996, or in a civil suit. 9. The petition is accordingly disposed of with liberty to the petitioners to adopt appropriate proceedings.
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