Himalaya Research Lab vs Mcd
2011 Latest Caselaw 1892 Del

           *IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                        Date of decision:   31st March, 2011

+               WP(C) NO.8261/2010 & CM.No.21250/2010(for stay)

%      HIMALAYA RESEARCH LAB                       ..... Petitioner
                   Through: Ms. Anjana Gusain with Mr. K.C.
                            Sharma, Ms. Pushpa Jhuravey & Mr.
                            C.B. Singh, Advocates.

                                        Versus

       MCD                                                     ..... Respondent
                             Through:      Ms. Maninder Acharya with Mr.
                                           Yashish Chandra, Advocates.

CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1.     Whether reporters of Local papers may                 No
       be allowed to see the judgment?

2.     To be referred to the reporter or not?                 No

3.     Whether the judgment should be reported                No
       in the Digest?


RAJIV SAHAI ENDLAW, J.

1. The petition impugns the order dated 28th September, 2010 of the

respondent MCD reiterating / reaffirming the earlier order dated 24th

April, 2009 debarring the petitioner for five years from supplying

Ayurvedic medicines to the respondent MCD. Notice of

the writ petition and the application for interim relief was issued. It was

deemed appropriate to dispose of the writ petition itself rather than

dealing with the application for interim relief. The pleadings have been

completed and the counsels have been heard.

2. The petitioner a manufacturer of Ayurvedic pharmaceutical

formulations and drugs for the last 20 years, has been empanelled in the

approved list of contractors of the respondent MCD for supply of the said

products. The respondent MCD placed a contract on the petitioner for

supply of Ayurvedic medicines mentioned therein for the years 2006 to

2008. The petitioner supplied the medicines for which order was placed

under the said contract. After about six months from the said supplies, the

respondent MCD claims to have sent samples thereof for testing to Sri

Ram Institute of Industrial Research, Delhi and, on the basis of the report

of the said test, issued show cause notice dated 23rd January, 2009 to the

petitioner. In the said show cause notice it was stated that Sri Ram

Institute of Industrial Research has declared the medicines supplied by the

petitioner to be "not of standard quality"; the petitioner was thus asked to

show cause as to why action as per rules should not be taken against it.

The petitioner by its reply dated 30th January, 2009 to the said show cause

notice asked the respondent for particulars as to how the samples were

taken and for the copy of the test report. However, the respondent MCD

without giving any hearing to the petitioner passed the order dated 24th

April, 2009, as aforesaid, debarring the petitioner from supplying

ayurvedic medicines for five years.

3. When the representations of the petitioner against the said order did

not meet with any success, the petitioner filed WP(C) 11284/2009 in this

Court impugning the order dated 24th April, 2009. The said writ petition

came up before this Court on 31st August, 2009 when the counsel for the

respondent MCD appearing on advance notice, without prejudice to the

rights and contentions of the respondent MCD stated that a fresh show

cause notice will be issued and a hearing given to the petitioner. On the

said statement of the respondent MCD, the order dated 24th April, 2009

debarring the petitioner from supplying medicines was quashed and

liberty was given to the respondent MCD to issue fresh show cause notice

and pass a speaking order, if necessary, after hearing the petitioner.

4. In pursuance to the above, a show cause notice dated 2 nd

September, 2009 was served on the petitioner wherein it was stated that

the medicines supplied by the petitioner were found "not of standard

quality" by Sri Ram Institute of Industrial Research on test analysis as per

their report dated 14th January, 2008; that supply of medicines "not of

standard quality" was in contravention of terms and conditions of NIT;

keeping in view the seriousness of the matter it was proposed to debar the

petitioner for the next five years from tendering with MCD. The

petitioner submitted a detailed reply to the said show cause notice.

However, the respondent MCD vide its order dated 28 th September, 2010

impugned in this petition has reiterated the earlier order of debarring the

petitioner inter alia on the ground that the medicines are something which

deal with the life of the poor people who take the medicines from MCD.

5. It is inter alia the contention of the petitioner that the punishment

meted out to it is in violation of the terms as to penalty contained in the

Notice Inviting Tender (NIT) in pursuance whereto the supplies were

made by the petitioner to the respondent MCD; that various pleas taken

by the petitioner in its reply to the show cause notice have not been dealt

with; that Sri Ram Test Laboratory itself had been disqualified by the

respondent MCD and no reliance whatsoever can be placed on its report;

that in any case the report of the test laboratory did not indicate that the

medicines supplied by the petitioner were not of standard quality; that the

requisite procedure had not been followed etc.

6. Before dealing with the contentions of the petitioner on merits, the

preliminary objection taken by the counsel for the respondent MCD as to

the maintainability of the present petition may be dealt with. It is the plea

of the respondent MCD that the NIT containing the terms and conditions

of supply provides for arbitration in Clause 17 thereof, making the

decision of the Director, Hospital Administration of the MCD as final in

all disputes relating to the contract. It is contended that the matter being

contractual and the contract itself having provided for dispute resolution,

the public law remedy of a writ petition ought not to be entertained. The

counsel for the petitioner in this regard as well as otherwise in support of

the writ petition relies upon Chandana Kedia Vs. Union of India 2010 II

AD (Delhi) 757 where a learned Single Judge of this Court upon similar

objection in a similar writ petition being taken, held that the existence of

alternative remedy by way of arbitration does not prevent this Court from

entertaining a writ petition under Article 226 of the Constitution in

appropriate cases involving violation of principle of natural justice by the

authority whose decision is challenged or when the authority has in

interpreting and applying a clause acted unreasonably and unfairly.

Reliance in this regard was placed on ABL International Ltd. Vs. Export

Credit Guarantee Corpn. Of India Ltd (2004) 3 SCC 553.

7. The counsel for the respondent MCD has been unable to show any

reason for not taking the same view as taken in the aforesaid judgments.

8. The NIT containing the terms and conditions of supply of

medicines by the petitioner to the respondent MCD under the heading

"Action for the drugs declared of substandard quality as per the guidelines

of Drug Controller of India" provided that the substandard drugs are of

two types i.e., either drugs declared misbranded, adulterated and spurious

or drugs declared not of standard quality. The present case is not

concerned with the first of the aforesaid types inasmuch as neither in the

show cause notice nor in the orders impugned in this petition it is the case

of the MCD that the drugs/medicines supplied by the petitioner had been

declared misbranded, adulterated and spurious. Be that as it may the

"action" provided for drugs declared misbranded, adulterated and spurious

also is only of cancelling the contract and recovery of purchase cost from

the contractor and destruction of the drugs remaining unconsumed and of

debarring that particular item "for the next contract period". The charge

made and found against the petitioner was of the drugs being not of

standard quality. The said defect, under the NIT was further classified in

two categories i.e. of minor defects and major defects. The penalty

provided for minor defects is of replacing of existing stock and the

contractor being asked to make payment for the consumed stock. For

major defects the penalty provided is of calling upon the contractor to lift

the existing stock, of cancellation of contract for the remaining period, of

calling upon the contractor to pay for the supplies and of debarring the

contractor "for that item for the remaining period of the contract and for

the next contract period".

9. The contention of the petitioner is that even though the charge

against the petitioner was of the medicines supplied by the petitioner

being not of standard quality, neither the show cause notice nor the order

impugned in the petition records as to whether the said charge fell in the

category of minor or major defect. It is further the case of the petitioner

that even if the defects was to be presumed to be major, neither has the

petitioner been called upon to lift any stock nor has been asked for price

thereof. It is yet further the argument of the counsel for the petitioner that

even in the case of a major defect (though not charged or established) the

maximum punishment could have been of debarring the petitioner for

supplying that particular drug/medicine only for the remaining period of

the contract or for the next contract period; the penalty provided is not of

debarring the petitioner for making any supplies whatsoever or for five

years; that the next contract period could be only from 2008 to 2010 and

there is no justification for debarring the petitioner after the year 2010 as

is being done.

10. This Court in Chandana Kedia (supra) has also held that penalty

more than that provided in the contract could not be imposed.

11. The respondent MCD neither in the counter affidavit nor in the

course of arguments has been able to explain as to why the show cause

notice and the impugned order though claiming the drugs supplied by the

petitioner to be not a standard quality, do not further classify whether the

said defect fell in the minor or major and as to why and under which

provision or right, the petitioner has been debarred for five years from

making of supplies, when even for a major defect the maximum penalty of

debarring from making supplies of that product only for the next contract

period i.e. for the year 2008-2010 only could be imposed.

12. In view of the aforesaid, even though other grounds have also been

taken by the petitioner, the aforesaid alone is found sufficient for the

petition to succeed.

13. Consequently, the petition is allowed; the impugned order dated

28th September, 2010 of the respondent MCD is hereby set aside/quashed.

I refrain from imposing any costs on the respondent.

RAJIV SAHAI ENDLAW (JUDGE) March 31, 2011 M