Karnataka High Court Upholds Three-Year Blacklisting Of Pharma Firm Over Substandard Drug Supply

The Karnataka High Court has upheld the three-year blacklisting of a pharmaceutical company after laboratory testing found batches of drugs supplied by it to be “Not of Standard Quality” (NSQ). The Court ruled that the procurement agency was entitled to act on the basis of a valid government laboratory report and rejected the company's challenge to the blacklisting order.

The dispute arose after Karnataka State Medical Supplies Corporation Limited (KSMSCL) procured iron and folic acid tablets from the company through a government tender process. Subsequent testing by the Drug Inspectorate reportedly found certain batches to be of substandard quality. Based on these findings, KSMSCL issued replacement notices and later initiated blacklisting proceedings under the tender conditions.

The company argued that it had not been provided with the Government Analyst’s report or statutory sample portions, preventing it from seeking re-analysis or challenging the findings. It also contended that the blacklisting process violated procurement rules and principles of natural justice.

Justice Suraj Govindaraj rejected these arguments, holding that any obligation to furnish reports or samples under the Drugs and Cosmetics Act rested with the Drug Inspectorate and not KSMSCL. The Court observed that KSMSCL, as a procurement agency, was entitled to rely on the Government Analyst’s report unless it was set aside by a competent authority.

The Court further held that the blacklisting was based on a contractual clause in the tender conditions and did not require compliance with the separate debarment procedure under procurement rules. Noting that the company had received notices and opportunities to respond, the Court found no procedural unfairness and dismissed the petition. However, it clarified that the company remains free to pursue remedies available under the Drugs and Cosmetics Act to challenge the laboratory findings.