Medipol Pharmaceutical India … vs Post Graduate Institute Of … on 5 August, 2020


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Supreme Court of India

Medipol Pharmaceutical India … vs Post Graduate Institute Of … on 5 August, 2020

Author: Rohinton Fali Nariman

Bench: Rohinton Fali Nariman, Navin Sinha

                                                              1

                                                                               REPORTABLE

                                         IN THE SUPREME COURT OF INDIA

                                          CIVIL APPELLATE JURISDICTION

                                        CIVIL APPEAL NO. 2903 OF 2020
                                   (ARISING OUT OF SLP (C) NO. 26349 OF 2019)

                         MEDIPOL PHARMACEUTICAL INDIA PVT.
                         LTD.                                            ….APPELLANT

                                         VERSUS

                         POST GRADUATE INSTITUTE OF MEDICAL
                         EDUCATION & RESEARCH AND ANR.      ….RESPONDENTS


                                                     JUDGMENT

R.F. Nariman, J.

1) Leave granted.

2) Having heard learned counsel for the parties, it is important to

first set out a few basic facts:

i) A notice inviting quotations was issued on 06.07.2015 by the

Respondents herein for Clotrimazole Cream 1% 15 gm tube, the

quantity being required for the first year and second year, being:

                                   DEMAND                         QUANTITY REQUIRED
                                   1st YEAR                       3400 tubes
                                   2nd YEAR                       3400 tubes
Signature Not Verified

Digitally signed by

ii) To this N.I.Q., the Appellant submitted its quotation on
INDU MARWAH
Date: 2020.08.07
16:42:31 IST
Reason:

09.07.2015, in which it was specified that the shelf life of the said
cream would be only 2 years.

2

iii) After rates were negotiated and re-negotiated, a supply order
was issued on 04.11.2015 in which it was clearly stated :

“8. Not more than 1/6th of the shelf life should have
expired when drug pharmaceuticals are received in
medical store PGI, Chandigarh.”

iv) In accordance with the supply order, the first instalment of 1700

tubes of Clotrimazole Cream was supplied on 18.01.2016, there

being no complaint whatsoever in respect of the said supply.

However, when the second instalment of 1700 tubes of the self-

same Cream was supplied to the Respondent on 08.04.2016,

various complaints were made. The first Respondent drew samples

on 29.11.2017, which samples were sent for testing to the

Government Analyst under Section 25(1) of the Drugs & Cosmetics

Act, 1940.

v) The first test report dated 27.03.2018 specifically stated that the

sample was received on 26.12.2017. This report, which is dated a

few days before the shelf life of the Cream expired, found that the

sample was 61.96% w/w as against an acceptable standard of 95-

105%.

vi) As a result thereof, two show cause notices were issued on

13.04.2018 and 30.5.2018 by the State Drugs Controller and Drug

Inspector respectively to the Appellant in which the Appellant was

asked to explain why its licence should not be suspended or

cancelled under Rule 85(2) of the Drugs and Cosmetics Rules,
3

1945 made under the Drugs and Cosmetics Act, which relates to

licence to manufacture this product.

vii) The Appellant replied to the show cause notices on 26.04.2018.

and 01.06.2018. However, a third show cause notice was issued on

26.09.2018 by the Respondent in which the question as to

blacklisting arose for the first time.

viii) The reply of the Appellant to this show cause notice dated

04.10.2018 specifically requested the authorities not to take any

action until a final report of the appellate lab, which was pending,

was received.

ix) However, without waiting for this report, on 21.01.2019, the

Appellant was blacklisted for a period of 2 years. A perusal of this

report would show that there are no reasons given for the same.

Finally, the appellate lab test report of the Central Drugs Laboratory,

Kolkata, dated 19.08.2019 tested a sample that was received on

11.02.2019, that is, long after the expiry date of the Cream, in April,

2018. Even this sample, when tested, yielded a result of 92.01%

which is way above the 61.96% that was found in the first test

report.

x) A post-decisional hearing, based on this report, was given to the

Appellant, and it was then found that the blacklisting order was in

order inasmuch as on 18.09.2019 the Drug Committee, which
4

consisted of a Chairman, two Members, two Special Invitees, one

Director and one Convenor, then expressed their views on the

arguments of the Appellant stating, inter alia, that on testing, the

subject drug was found to be only 61.96%, which is markedly below

the prescribed standard limit of 95-105%.

xi) As against the decision then taken, the Appellant filed a writ

petition in the Punjab & Haryana High Court, which was dismissed

by the impugned order dated 17.09.2019. After extracting the

appellate lab test report, the Court found that being 3% below 95%,

which is the prescribed standard, there was no good ground to

interfere with the impugned order of blacklisting.

3) What is clear from the narration of the facts stated above is that

the Drug Inspector drew samples on 29.11.2017 which was long

after supplies had been made to the Respondent on 08.04.2016

and complaints received. From the date of drawal of samples on

29.11.2017 till the date on which the samples were received by the

Government Analyst on 26.12.2017, there is yet another delay of

almost one month. Also, owing to no fault of the Appellant, the

sample that could be sent to the Central Drugs Laboratory, Kolkata,

under Section 25(3) of the Drugs and Cosmetics Act, was received

by the aforesaid Laboratory only on 11.02.2019, long after the

expiry date of the goods in question, which was in April, 2018.
5

Even this sample, when tested, yielded a result of 92.01%, which is

only roughly 3% below the required minimum standard. What is

important to note is that the Government Analyst’s report was

shown to be completely wrong. Finally, to cap it all, after a post-

decisional hearing given to the Appellant, the seven-member

Committee opined that there was no reason to recall the blacklisting

order based on the result of the first laboratory test report,

completely ignoring the appellate test report.

4) On these facts, we find that the impugned decision reflected in

the minutes dated 18.09.2019 is wholly perverse inasmuch as it is

based only upon the first laboratory test report.

5) The High Court, instead of striking down this decision in judicial

review proceedings, went into the appellate laboratory test report

itself and stated that as it was 3% below the prescribed percentage

of 95%, the blacklisting order ought not to be interfered with.

6) The High Court ought not to have gone into the appellate

laboratory test report by itself. It ought to have struck down the

impugned decision on the ground that it relied upon something

irrelevant, namely, the first laboratory test report and ignored the

appellate report. The High Court ought also to have appreciated

that the appellate laboratory report was at complete variance with

the first laboratory test report – the variation being a huge figure of
6

30%. This was despite the fact that the appellate laboratory test

report tested a sample of the Appellant’s product long after its shelf

life had expired.

7) Section 25 of the Drugs and Cosmetics Act states as follows:

“25. Reports of Government Analysts.—
(1) The Government Analyst to whom a sample of
any drug or cosmetic has been submitted for test or
analysis under sub-section (4) of section 23, shall
deliver to the Inspector submitting it a signed report
in triplicate in the prescribed form.

(2) The Inspector on receipt thereof shall deliver one
copy of the report to the person from whom the
sample was taken and another copy to the person, if
any, whose name, address and other particulars
have been disclosed under section 18A, and shall
retain the third copy for use in any prosecution in
respect of the sample.

(3) Any document purporting to be a report signed
by a Government Analyst under this Chapter shall
be evidence to the facts stated therein, and such
evidence shall be conclusive unless the person from
whom the sample was taken or the person whose
name, address and other particulars have been
disclosed under section 18A has, within twenty-eight
days of the receipt of a copy of the report, notified in
writing the Inspector or the Court before which any
proceedings in respect of the sample are pending
that he intends to adduce evidence in controversion
of the report.

(4) Unless the sample has already been tested or
analysed in the Central Drugs Laboratory, where a
person has under sub-section (3) notified his
intention of adducing evidence in controversion of a
Government Analyst‘s report, the Court may, of its
own motion or in its discretion at the request either
of the complainant or the accused, cause the
sample of the drug or cosmetic produced before the
Magistrate under subsection (4) of section 23 to be
sent for test or analysis to the said Laboratory, which
shall make the test or analysis and report in writing
7

signed by, or under the authority of, the Director of
the Central Drugs Laboratory the result thereof, and
such report shall be conclusive evidence of the facts
stated therein.

(5) The cost of a test or analysis made by the
Central Drugs Laboratory under sub-section (4) shall
be paid by the complainant or accused as the Court
shall direct.”

8) The decisions of this Court on the aforesaid provision are

instructive. In Medicamen Biotech Ltd. v. Rubina Bose, Drug

Inspector (2008) 7 SCC 196, after extracting the Section, the

Court held:

“13….A reading of the aforesaid provisions would
reveal that they lay certain obligations as well as
provide safeguards for a person from whom a drug
has been seized for analysis or testing as Section
25(3)
specifies that unless such a person
controverts the correctness of the report submitted
by the Government Analyst within 28 days in writing
that he intends to adduce evidence to controvert the
report of the analyst, it would be deemed to be
conclusive evidence of the quality of the drug
whereas sub-section (4) of Section 25 obliges the
Magistrate on the request of the complainant or the
accused or on his own motion to send the fourth
sample which has been disputed for fresh testing to
the Director of the Central Drugs Laboratory.”

After referring to the case law on the subject, the Court arrived at

the following conclusion on the facts of the case :

“19. In the affidavit filed to the petition by Dr. D. Rao,
Deputy Drugs Controller, and in arguments before
us, it has been repeatedly stressed that the delay in
sending of the sample to the Central Drugs
Laboratory had occurred as the appellant had
avoided service of summons on it till 9-5-2005. This
8

is begging the question. We find that there is no
explanation as to why the complaint itself had been
filed about a month before the expiry of the shelf life
of the drug and concededly the filing of the
complaint had nothing to do with the appearance of
the accused in response to the notices which were
to be issued by the Court after the complaint had
been filed. Likewise, we observe that the requests
for retesting of the drug had been made by the
appellant in August/September 2001 as would be
clear from the facts already given above and there is
absolutely no reason as to why the complaint could
not have been filed earlier and the fourth sample
sent for retesting well within time. We are, therefore,
of the opinion that the facts of the case suggest that
the appellants have been deprived of a valuable
right under Sections 25(3) and 25(4) of the Act
which must necessitate the quashing of the
proceedings against them.”

9) In Laborate Pharmaceuticals India Ltd. v. State of Tamil

Nadu (2018) 15 SCC 93, after referring to Section 25 of the Act,

this Court held as follows:

“7. The cognizance of the offence(s) alleged in the
present case was taken on 4-3-2015 though it
appears that the complaint itself was filed on 28-11-
2012. According to the appellant the cough syrup
had lost shelf life in the month of November 2012
itself. Even otherwise, it is reasonably certain that
on the date when cognizance was taken, the shelf
life of the drug in question had expired. The
Magistrate, therefore, could not have sent the
sample for reanalysis by the Central Laboratory.

8. All the aforesaid facts would go to show that the
valuable right of the appellant to have the sample
analysed in the Central Laboratory has been denied
by a series of defaults committed by the
prosecution; firstly, in not sending to the appellant
manufacturer part of the sample as required under
Section 23(4)(iii) of the Act; and secondly, on the
9

part of the Court in taking cognizance of the
complaint on 4-3-2015 though the same was filed on
28-11-2012. The delay on both counts is not
attributable to the appellants and, therefore, the
consequences thereof cannot work adversely to the
interest of the appellants. As the valuable right of the
accused for reanalysis vested under the Act appears
to have been violated and having regard to the
possible shelf life of the drug we are of the view that
as on date the prosecution, if allowed to continue,
would be a lame prosecution.”

10) The position is no different under pari materia provisions of

other Acts. Thus, in Municipal Corporation of Delhi v. Ghisa

Ram (1967) 2 SCR 116, the testing of samples was dealt with by

Section 13 of the Prevention of Food Adulteration Act, 1954. This

Court held:

“There can be no doubt that the sub-s. (2) of s. 13
of the Act confers a right on the accused vendor to
have the sample given to him examined by the
Director of the Central Food Laboratory and to
obtain a certificate from him on the basis of the
analysis of that sample. It is when the accused
exercises this right that a certificate has to be given
by the Director of the Central Food Laboratory and
that certificate then supersedes the report given by
the Public Analyst. If, in any case, the accused does
not choose to exercise this right, the case against
him can be decided on the basis of the report of the
Public Analyst.

xxx xxx xxx

In the present case, we find that the decomposition
of the sample, which the respondent desired should
be analysed by the Director of the Central Food
Laboratory, took place because of the long delay
that had occurred in sending the sample to the
Director.

10

xxx xxx xxx

It appears to us that when a valuable right is
conferred by s. 13 (2) of the Act on the vendor to
have the sample given to him analysed by the
Director of the Central Food Laboratory, it is to be
expected that the prosecution will proceed in such a
manner that that right will not be denied to him. The
right is a valuable one, because the certificate of the
Director supersedes the report of the Public Analyst
and is treated as conclusive evidence of its
contents. Obviously, the right has been given to the
vendor in order that, for his satisfaction and proper
defence, he should be able to have the sample kept
in his charge analysed by a greater expert whose
certificate is to be accepted by Court as conclusive
evidence. In a case where there is denial of this
right on account of the deliberate conduct of the
prosecution, we think that the vendor, in his trial, is
so seriously prejudiced that it would not be proper to
uphold his conviction on the basis of the report of
the Public Analyst, even though that report
continues to be evidence in the case of the facts
contained therein.”1

On the facts of the case, the Court arrived at the following

conclusion:

“In the present case, the sample was taken on the
20th September, 1961. Ordinarily, it should have
been possible for the prosecution to obtain the
report of the Public Analyst and institute the
prosecution within 17 days of the taking of the
sample. It, however, appears that delay took place
even in obtaining the report of the Public Analyst,
because the Public Analyst actually analysed the
sample on 3rd October, 1961 and sent his report on
23rd October, 1961. It may be presumed that some
delay in the analysis by the Public Analyst and in his
sending his report to the prosecution is bound to
occur. Such delay could always be envisaged by the

1 Pages 118-120.

11

prosecution, and consequently, the elementary
precaution of adding a preservative to the sample
which was given to the respondent should
necessarily have been taken by the Food Inspector.

If such a precaution had been taken, the sample
with the respondent would have been available for
analysis by the Director of the Central Food
Laboratory for a period of four months which would
have expired about the 20th of January, 1962. The
report of the Public Analyst having been sent on
23rd October, 1961 to the prosecution, the
prosecution could have been launched well in time
to enable the respondent to exercise his right under
s. 13(2) of the Act without being handicapped by the
deterioration of his sample. The prosecution, on the
other hand, committed inordinate delay in launching
the prosecution when they filed the complaint on
23rd May, 1962, and no explanation is forthcoming
why the complaint in Court was filed about seven
months after the report of the Public Analyst had
been issued by him This, is, therefore, clearly a case
where the respondent was deprived of the
opportunity of exercising his right to have his sample
examined by the Director of the Central Food
Laboratory by the conduct of the prosecution. In
such a case, we think that the respondent is entitled
to claim that his conviction is vitiated by this
circumstance of denial of this valuable right
guaranteed by the Act, as a result of the conduct of
the prosecution.”2

11) Likewise, under Section 24 of the Insecticides Act, 1968, this

Court in State of Haryana v. Unique Farmaid (P) Ltd. (1998) 8

SCC 190 held:

“12. It cannot be gainsaid, therefore, that the
respondents in these appeals have been deprived of
their valuable right to have the sample tested from
the Central Insecticides Laboratory under sub-
section (4) of Section 24 of the Act. Under sub-

section (3) of Section 24 report signed by the

2 Pages 120-121.

12

Insecticide Analyst shall be evidence of the facts
stated therein and shall be conclusive evidence
against the accused only if the accused do not,
within 28 days of the receipt of the report, notify in
writing to the Insecticide Inspector or the court
before which proceedings are pending that they
intend to adduce evidence to controvert the report.

In the present cases the Insecticide Inspector was
notified that the accused intended to adduce
evidence to controvert the report. By the time the
matter reached the Court, the shelf life of the
sample had already expired and no purpose would
have been served informing the Court of such an
intention. The report of the Insecticide Analyst was,
therefore, not conclusive. A valuable right had been
conferred on the accused to have the sample tested
from the Central Insecticides Laboratory and in the
circumstances of the case the accused have been
deprived of that right, thus, prejudicing them in their
defence.”

12) Though the aforesaid judgments pertain to criminal

prosecutions under the Drugs and Cosmetics Act, Prevention of

Food Adulteration Act and Insecticides Act, yet, they lay down that

a valuable right is granted to a person who is sought to be

penalized under these Acts to have a sample tested by the

Government Analyst that is found against such person, to be tested

by a superior or appellate authority, namely, the Central Drugs

Laboratory. These judgments lay down that if owing to delay which

is predominantly attributable to the State or any of its entities,

owing to which an article which deteriorates with time is tested as

not containing the requisite standard, any prosecution or penalty

inflictable by virtue of such sample being tested, cannot then be
13

sustained. We have seen that on the facts of this case, the sample

drawn and analyzed by the Government Analyst was delayed for a

considerable period resulting in the sample being drawn towards

the end of its shelf life. Even insofar as the samples sent to the

Central Drugs Laboratory, there was a considerable delay which

resulted in the sample being sent and tested 8 months beyond the

shelf life of the product in this case. It is thus clear that the

valuable right granted by Section 25 of the Drugs and Cosmetics

Act kicks in on the facts of this case, which would necessarily

render any penalty based upon the said analysis of the sample as

void.

13) When it comes to the penalty of blacklisting, the classic

formulation of principles in regard to blacklisting have been laid

down in Erusian Equipment & Chemicals Ltd. v. State of West

Bengal (1975) 1 SCC 70. This Court put it thus:

“12. Under Article 298 of the Constitution the
executive power of the Union and the State shall
extend to the carrying on of any trade and to the
acquisition, holding and disposal of property and the
making of contracts for any purpose. The State can
carry on executive function by making a law or
without making a law. The exercise of such powers
and functions in trade by the State is subject to Part
III of the Constitution. Article 14 speaks of equality
before the law and equal protection of the laws.
Equality of opportunity should apply to matters of
public contracts. The State has the right to trade.

The State has there the duty to observe equality. An
ordinary individual can choose not to deal with any
14

person. The Government cannot choose to exclude
persons by discrimination. The order of blacklisting
has the effect of depriving a person of equality of
opportunity in the matter of public contract. A person
who is on the approved list is unable to enter into
advantageous relations with the Government
because of the order of blacklisting. A person who
has been dealing with the Government in the matter
of sale and purchase of materials has a legitimate
interest or expectation. When the State acts to the
prejudice of a person it has to be supported by
legality.

xxx xxx xxx

17. The Government is a Government of laws and
not of men. It is true that neither the petitioner nor
the respondent has any right to enter into a contract
but they are entitled to equal treatment with others
who offer tender or quotations for the purchase of
the goods. This privilege arises because it is the
Government which is trading with the public and the
democratic form of Government demands equality
and absence of arbitrariness and discrimination in
such transactions. Hohfeld treats privileges as a
form of liberty as opposed to a duty. The activities of
the Government have a public element and,
therefore, there should be fairness and equality. The
State need not enter into any contract with any one
but if it does so, it must do so fairly without
discrimination and without unfair procedure.
Reputation is a part of a person’s character and
personality. Blacklisting tarnishes one’s reputation.

xxx xxx xxx

19. Where the State is dealing with individuals in
transactions of sales and purchase of goods, the two
important factors are that an individual is entitled to
trade with the Government and an individual is
entitled to a fair and equal treatment with others. A
duty to act fairly can be interpreted as meaning a
duty to observe certain aspects of rules of natural
justice. A body may be under a duty to give fair
consideration to the facts and to consider the
15

representations but not to disclose to those persons
details of information in its possession. Sometimes
duty to act fairly can also be sustained without
providing opportunity for an oral hearing. It will
depend upon the nature of the interest to be
affected, the circumstances in which a power is
exercised and the nature of sanctions involved
therein.

20. Blacklisting has the effect of preventing a person
from the privilege and advantage of entering into
lawful relationship with the Government for purposes
of gains. The fact that a disability is created by the
order of blacklisting indicates that the relevant
authority is to have an objective satisfaction.
Fundamentals of fair play require that the person
concerned should be given an opportunity to
represent his case before he is put on the blacklist.”

14) This judgment has been followed in several later judgments.

Thus, in Patel Engineering Ltd. v. Union of India (2012) 11 SCC

257, this Court after referring to judgment in Erusian Equipment

(supra), then held:

“15. It follows from the above judgment in Erusian
Equipment case [(1975) 1 SCC 70] that the decision of
the State or its instrumentalities not to deal with certain
persons or class of persons on account of the
undesirability of entering into the contractual
relationship with such persons is called blacklisting.

The State can decline to enter into a contractual
relationship with a person or a class of persons for a
legitimate purpose. The authority of the State to
blacklist a person is a necessary concomitant to the
executive power of the State to carry on the trade or
the business and making of contracts for any purpose,
etc. There need not be any statutory grant of such
power. The only legal limitation upon the exercise of
such an authority is that the State is to act fairly and
rationally without in any way being arbitrary—thereby
such a decision can be taken for some legitimate
16

purpose. What is the legitimate purpose that is sought
to be achieved by the State in a given case can vary
depending upon various factors.”

In Kulja Industries Ltd. v. Chief General Manager, Western

Telecom Project BSNL (2014) 14 SCC 731, this Court referred to

the leading judgment of Erusian Equipment (supra) and

subsequent decisions of this Court, following the ratio of this

decision, as follows:

“18. The legal position on the subject is settled by a
long line of decisions rendered by this Court starting
with Erusian Equipment & Chemicals Ltd. v. State of
W.B
. [(1975) 1 SCC 70] where this Court declared
that blacklisting has the effect of preventing a
person from entering into lawful relationship with the
Government for purposes of gains and that the
authority passing any such order was required to
give a fair hearing before passing an order
blacklisting a certain entity. This Court observed:
(SCC p. 75, para 20)

“20. Blacklisting has the effect of preventing a
person from the privilege and advantage of
entering into lawful relationship with the
Government for purposes of gains. The fact that
a disability is created by the order of blacklisting
indicates that the relevant authority is to have
an objective satisfaction. Fundamentals of fair
play require that the person concerned should
be given an opportunity to represent his case
before he is put on the blacklist.”

Subsequent decisions of this Court in Southern
Painters v. Fertilizers & Chemicals Travancore Ltd
.
[1994 Supp (2) SCC 699 : AIR 1994 SC 1277] ;
Patel Engg. Ltd. v. Union of India [(2012) 11 SCC
257 : (2013) 1 SCC (Civ) 445] ; B.S.N. Joshi & Sons
Ltd. v. Nair Coal Services Ltd
. [(2006) 11 SCC 548] ;
Joseph Vilangandan v. Executive Engineer (PWD)
17

[(1978) 3 SCC 36] among others have followed the
ratio of that decision and applied the principle of
audi alteram partem to the process that may
eventually culminate in the blacklisting of a
contractor.

19. Even the second facet of the scrutiny which the
blacklisting order must suffer is no longer res
integra. The decisions of this Court in Radhakrishna
Agarwal v. State of Bihar
[(1977) 3 SCC 457 : (1977)
3 SCR 249] ; E.P. Royappa v. State of T.N. [(1974) 4
SCC 3 : 1974 SCC (L&S) 165] ; Maneka Gandhi v.
Union of India
[(1978) 1 SCC 248] ; Ajay Hasia v.
Khalid Mujib Sehravardi
[(1981) 1 SCC 722 : 1981
SCC (L&S) 258] ; Ramana Dayaram Shetty v.

International Airport Authority of India [(1979) 3 SCC
489] and Dwarkadas Marfatia and Sons v. Port of
Bombay
[(1989) 3 SCC 293] have ruled against
arbitrariness and discrimination in every matter that
is subject to judicial review before a writ court
exercising powers under Article 226 or Article 32 of
the Constitution.”

15) We have seen in the present case that the post-decisional

hearing proved to be an eyewash as the seven-member Committee

did not even refer to the findings of the appellate report, which

showed that the Government Analyst’s report was wholly incorrect,

61.96% being widely off the mark. Given the fact that there is

considerable unexplained delay on the part of the Drug authorities

and the Respondent resulting in the first and second samples

being tested late – the second sample being tested 8 months after

its shelf life had expired – it is clear that the order of blacklisting

dated 21.02.2019, as confirmed by the order dated 18.09.2019, is
18

infirm and is therefore, set aside. Concomitantly, the impugned

High Court judgment is also set aside.

16) The appeal is allowed in the aforesaid terms.

…………………………………….. J.

(ROHINTON FALI NARIMAN)

…………………………………….. J.

(NAVIN SINHA)
New Delhi;

August 05, 2020.



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