Karnataka High Court

M/S Shree Anand Life Sciences Ltd vs State Of Karnataka on 23 February, 2022

Bench: R Natarajpresided Byrnj

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       fIN THE HIGH COURT OF KARNATAKA

                 DHARWAD BENCH

DATED THIS THE 23RD DAY OF FEBRUARY, 2022

                      BEFORE

     THE HON'BLE MR. JUSTICE R. NATARAJ

WRIT PETITION NO.104884 OF 2021 (GM-TEN)

BETWEEN:

M/S. SHREE ANAND LIFE SCIENCES LTD.
318/3B, ROY ROAD, TILAKWADI,
BELGAVI-590 006.
REP. BY CHAIRMAN AN MANAGING DIRECTOR,
SHRI. SATISH GHARGE S/O. MOHANRAO,
AGE: 61 YEARS.
                                    ... PETITIONER
(BY SRI. SHIVAPRASAD SANTANAGOUDAR, ADVOCATE)

AND:
1.     STATE OF KARNATAKA
       REPRESENTED BY ITS PRINCIPAL SECRETARY,
       HEALTH AND FAMILY WELFARE DEPARTMENT,
       #105, 1 FLOOR, VIKAS SOUDHA,
       BENGALURU - 560001.

2.     MANAGING DIRECTOR
       KARNATAKA STATE MEDICAL SUPPLIES
       CORPORATION LIMITED,
       PHI BUILDING, K.R. CIRCLE,
       SHESHADRI ROAD,
       BENGALURU - 560001.
                                   ... RESPONDENTS
(BY SRI. SHIVAPRABHU S. HIREMATH, AGA FOR R1
 SMT. SUMANA BALIGA, ADV. FOR R2)
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     THIS WRIT PETITION IS FILED UNDER ARTICLES
226 & 227 OF THE CONSTITUTION OF INDIA, PRAYING TO
1) ISSUE A WRIT IN THE NATURE OF CERTIORARI, OR
ANY OTHER WRIT, ORDER OR DIRECTION QUASHING THE
CORRIGENDUM     FOR    PURCHASE   ORDER    BEARING
NO.PONO.KSMSCL/2021-22/PO/100 PASSED BY THE
RESPONDENT NO.2 AT ANNEXURE-L AND L1.2) ISSUE A
WRIT IN THE NATURE OF CERTIORARI, OR ANY OTHER
WRIT, ORDER OR DIRECTION QUASHING THE TENDER
NOTIFICATION BEARING NO.HGW/KSMSCL/TND/COVID/8-
DRUGS/29-2021-22    (IND-873)   DATED   29.11.2021,
ISSUED BY THE RESPONDENT NO.2 AT ANNEXURE-V
INSOFAR AS IT RELATES TO PROCURING DRUG NAMED
20.02.2021 AND ETC.

     THIS PETITION HAVING BEEN HEARD AND
RESERVED FOR ORDERS ON 21.01.2022, COMING ON FOR
PRONOUNCEMENT OF ORDER, THE COURT MADE THE
FOLLOWING:

                            ORDER

The petitioner alleged that in response to an

invitation to tender, it participated and quoted the price for

supply of injection dexamethazone 4 m.g./m.l. and

injection Enoxaparin sodium 40 m.g./0.4 m.l. , Ampoule

with syringe Combi pack. The petitioner claimed that it

was awarded the tender for manufacture and supply of the

said drug after a price negotiation meeting on 02.06.2021.

It alleged that on 06.06.2021, respondent No.2 issued a

purchase order for supply of 2,50,000 units of injection

Enoxaparin sodium 40 m.g./0.4ml Ampoule with syringe

Combi pack, at the rate of Rs.162 per unit. It was stated

in the said purchase order that 1,00,000 units should be

supplied within 14 days and 1,50,000 units should be

supplied within 21 days from the date of the purchase

order. The petitioner claimed that in compliance with the

terms of the purchase order, it entered into an agreement

dated 10.06.2021 undertaking to abide by the terms and

conditions of the purchase order and also parted with a

demand draft for Rs.12,15,000/- towards the performance

security deposit. The petitioner alleged that since

the petitioner was put on at time line to supply, it had to

manufacture the drug on a war footing. However the

Director (drugs) of the respondent No.2 e-mailed on

11.06.2021 to the petitioner that the petitioner should not

supply the drug until further orders in view of space

constraints. The petitioner alleged that by that time the

petitioner had purchased raw material and had incurred

expenses there to as per Annexure-H2 to H5. It also

alleged that it had manufactured 2,50,000 units and

packed the same under three batches and had kept it for

delivery on 05.07.2021. When things stood thus, the

second respondent addressed an e-mail on 05.07.2021

enclosing therewith a corrigendum issued to the purchase

order dated 06.06.2021 reducing the quantity of drug from

2,50,000 units to 50,000 units. The petitioner alleged that

the drug was manufactured as per the specification

prescribed by the respondent No.2 and therefore could not

be sold in the open market as these units carried the label

"Karnataka Government Supply, not for sale". The

petitioner therefore, escalated the issue before the

Additional Chief Secretary of respondent No.1 requesting

him to direct the respondent No.2 to procure 2,50,000

units. The petitioner supplied 50,000 units under protest.

Thereafter the respondent No.2 issued another purchase

order dated 29.07.2021 for the supply of 70,000 units of

the same drugs which was delivered by the petitioner on

30.07.2021. The petitioner claimed that the remaining

units were lying unused in the premises of the petitioner.

It alleged that due to the unilateral and arbitrary

modification of the tender conditions it had suffered severe

monetary loss and exposed huge investment to risk. The

petitioner therefore submitted representations to the

Principal Secretary and to the Hon'ble Chief Minister

requesting them to issue directions to procure the balance

1,30,000 units.

2. The petitioner alleged that instead of procuring

the drug from the petitioner, the respondent No.2 invited a

fresh tender for the very same drug by a notification dated

29.11.2021 to procure 23,19,931 units, though in a pre-

filled syringe form. Therefore the petitioner contends that

the respondent No.2 has acted arbitrarily in attempting to

wriggle out of a concluded contract with the petitioner. It

is submitted that the respondent No.2 had held out a

promise to the petitioner based upon the petitioner had

altered its stand by manufacturing the entire quantity of

2,50,000 units. He therefore submitted that the

respondent No.2 is bound to be hauled up to stand by its

promise made to the petitioner. In this regard he relied on

the judgment of the Hon'ble Apex Court in the case of

Gujarat State Financial Corporation Vs. Lotus Hotel

Pvt. Ltd. (1983) 3 SCC 379 and M/s. Motilal Padampat

Sugar Mills Company Pvt. Ltd. Vs. State of U.P. and

others (1979) 2 SCC 409. He further contended that the

State and its instrumentalities cannot act arbitrarily in

contractual matters but its conduct should be rational and

non discriminatory. He relied upon the judgment of the

Supreme Court in Ramana Dayaram Shetty Vs.

International Airport Authority of India and others

(1979) 3 SCC 489 as well as Chairman, All India

Railway Recruitment Board and another Vs. K.

Shyamkumar and others (2010) 6 SCC 614. He

contended that when the State is a contracting party, it

should treat private parties fairly and any attempt at one-

upmanship by the State should be dealt with an iron hand.

In this regard he relied upon the judgment of the Supreme

Court in Maa Binda Express Carrier and another Vs.

North East Frontier Railway and others (2014) 3 SCC

760 and Noida Entrepreneurs Association Vs. Noida

and others (2011) 6 SCC Pg.508. The learned counsel for

the petitioner hence sought to quash the corrigendum of

the purchase order dated 06.06.2021 and the consequent

tender notification dated 29.11.2021 and for writ in the

nature of mandamus to procure the balance 1,30,000 units

from the petitioner.

3. The respondent No.2 opposed the writ petition

contending that it had invited quotations for supply of

several drugs including injection Enoxaparin sodium 40

m.g./0.4 m.l. , Ampoule with syringe combipack in terms

of the notification dated 22.05.2021. The total quantity to

be procured was 10,00,000 units of injection Enoxaparin

sodium 40 m.g./0.4 m.l., Ampoule with syringe combi

pack. As the injection Enoxaparin Sodium was a life

saving drug used in treatment for Covid-19, the price

fixation and negotiation committee decided to place

purchase order with other bidders also who matched the

price quoted by the lowest bidder. Accordingly, the price

was negotiated with the petitioner and a purchase order

was issued to the petitioner to supply 2,50,000 unit of the

drug in combi pack. However within five days thereafter

the petitioner was instructed by an e-mail not to supply

the drug until further orders. The learned counsel for the

respondent No. 2 submitted that there is no proof to show

that the petitioner had ever procured the raw material for

the manufacture of the injection prior to 11.06.2021 and

that Annexure H1 to H5 were all subsequent to the notice

dated 11.06.2021. It further contended that the

respondents were faced with a dynamic sensitive situation

while dealing with the pandemic and therefore respondent

No. 2 had to procure the medicine based on the needs of

the public health institutions in the State of Karnataka.

The respondent No.2 contended that the specifications to

combat the third wave of Covid-19 situation differed from

what was conservatively conceptualized. Since the

Government of India had directed all State Governments

to be prepared to combat with the third wave of Covid-19,

a fresh notification in November 2021 was issued in terms

of which the drug in pre-filled syringes had to be procured.

It was in that context that a notification dated 29.11.2021

was issued. The learned counsel for the respondent No.2

submitted that the petitioner has supplied 50,000/- units

based on the modified purchase order dated June 2021

and the supply was effected on 26.06.2021 and

subsequently another tranche of 70,000 units was supplied

on 29.07.2021. It also contended that the petitioner was a

known manufacturer of the drug and presently was

supplying it in pre-filled syringe form and therefore, it

would not be put to any hardship as the drug could still be

sold by removing the labels or could be transferred into

syringe for supply. Therefore, the respondent No. 2

contended that the petitioner had not suffered any

damage. The respondent No. 2 contended that there is no

purchase order that is in force now and therefore the

petitioner cannot allege breach and even if it does, it has

to be adjudicated before the Civil Court.

4. This Court had passed an interim order on

08.12.2021 in terms of which it was directed that;

"The state shall file an affidavit stating that would abide by the terms and agreement that is enter into and a tender notification is now issued would have no bearing on the contract of the petitioner".

5. Further order on 9.12.2021 was passed as

follows:

"Having regard to the order by this Court on 8.12.2021, the confirmation of tender under Annexure-V should not be finalized.

It is made clear that, in case the second respondent undertakes to permit the petitioner to supply contractual quantity of 2,50,000 vials, this interim order would not be in operation".

6. Following the above orders the Managing

Director of the respondent No.2 has filed an affidavit on

13.01.2022 stating that;

"I submit that keeping the urgency of having enough stock of the said drug the purchase order was issued for the quantity of 10 lakhs against the 23,19,931 vials, remaining quantity of 13,19,931 vials is yet to be finalized."

7. In order to sort out the issue amicably

between the parties, this Court suggested to the petitioner

whether it could undertake to supply the drug in pre-filled

syringe form as is done in the notification dated

29.11.2021 at the lowest price submitted by the bidder

against the notification dated 29.11.2021. The Managing

Director of respondent No.2 later filed an affidavit on

20.01.2022 stating that the cost of drug in pre-filled

syringe form as per the notification dated 29.11.2021 is

Rs.146.50 per unit. It was stated therein that the

respondent no.2 would accept the supply of 1,30,000 units

from the petitioner in pre-filled form @ Rs.146.50 per unit.

The petitioner however was not willing to accept this

proposal on the ground that it did not have the technical

expertise to transfer the drug from the vials to the syringe

and also on the ground that the efficacy of the drug could

come down in the process of transfer. Since the parties

have not been able to reach a common ground, the writ

petition was taken for final disposal.

8. I have considered the submission made by the

learned counsel and I have also perused the voluminous

records.

9. It is not in dispute that the respondent No.2

had invited bids to procure various drugs as per the

notification dated 22.05.2021. In so far the present

case is concerned 10,00,000 units of Enaxoparin Sodium

injection 40 mg. ampule with 0.4 ml syringe was to be

procured in a combi pack. The petitioner was also one of

the bidders whose price bid was the third lowest. The bid

document provided as follows;

"bid inviting authority reserves the right to award part of the order quantity to L2, L3 if they match L1 price to ensure early supply or in case L1 fails to supply the goods as per the delivery schedule mandated as per the quotation".

10. The petitioner addressed an e-mail dated

4.6.2021 to the Managing Director of the respondent No.2

stating therein as follows:

"With respect to the price negotiation meeting held for the tender dated 22.05.2021 on 02.06.2021, be hereby agreed to match the rate with L1 price of Rs.162."

11. Following this, the respondent no.2 issued a

purchase order dated 06.06.2021 to procure 2,50,000

units of Enaxoparin Sodium injection 40 mg. ampule with

0.4 ml syringe was to be procured in a combi pack. The

petitioner furnished 3% of the value of the purchase order

towards performance guarantee and also executed an

agreement on 11.6.2021. On the same day i.e., on 11-06-

2021 at 11:58 a.m., the respondent No.2 addressed an e-

mail to the petitioner not to supply the drug until further

orders. However the respondent No.2 did not cancel the

purchase order dated 6.6.2021 and kept the petitioner on

tenterhooks. Thereafter, on 05-07-2021, the second

respondent addressed an e-mail and enclosed a

corrigendum issued to the purchase order dated

06.06.2021 by which the quantity of drug to be procured

was reduced from 2,50,000 units to 50,000 units. The

petitioner supplied 50,000 units under protest on 15-07-

2021 which was received at the warehouse of the

respondent no.2 on 17-07-2021. Thereafter the

respondent No.2 issued another purchase order dated

29.07.2021 for the supply of 70,000 units of the same

drugs which was delivered by the petitioner on

30.07.2021. The respondent no.2 thereafter issued

another tender notification dated 29-11-2021 apparently

to procure covid-19 related drugs which included

23,19,931 units " Low Molecular weight Heparin

(Enoxparin) PFS Injection 40mg/0.4ml". Though the

petitioner claims that the only difference is that earlier the

injection was supplied in a vial with a syringe in a combi-

pack, presently, it is the same drug in a pre-filled syringe.

However, it is disputed by the respondent no.2 who

contends that the composition of the injections varied.

Since it was difficult for the Court to comprehend the

difference, this court did not feel it appropriate to

comment on it. Having regard to the fact that the State of

Karnataka was reeling under the influence of Covid-19, the

situation was really dynamic and the State had to act

taking into account the need of the medical institutions in

the State.

12. Be that as it may, it is clear from the

averments of the writ petition that the petitioner was not

the lowest bidder but the respondent no.2 depending upon

the lowest price bid received, negotiated with the

tenderers to supply at the lowest price. In so far as the

petitioner is concerned, a price negotiation meeting was

held on 2-6-2021 and depending on the quantity of the

drug that could be supplied by the petitioner, an offer was

made by the petitioner on 04-06-2021 to supply 2,50,000

units at Rs.162/- per unit. Accordingly, a purchase order

was issued on 6-06-2011 to supply 2,50,000 units of the

drug in combi pack. The petitioner was required to execute

an agreement agreeing to abide by the terms of the

purchase order and also furnish a demand draft for 3% of

the value of the purchase order towards performance

guarantee within two days from the date of the purchase

order. The respondent no.2 addressed an e-mail on 11-06-

2021 at 11-58 A.M informing the petitioner that due to

constraints of space, it should not supply the scheduled

drugs until further orders from respondent no.2.

Apparently, the petitioner had not even obtained the

demand draft prior to 11-06-2021 and the stamp paper for

the agreement was purchased only on 10-06-2021. The

only palpable mistake that the respondent no.2 did was in

not intimating the petitioner that the purchase order dated

6-6-2021 was cancelled but kept the petitioner in

suspended animation until 05-07-2021 when it addressed

a mail enclosing an undated purchase order (--06-2021) to

supply 50,000 units within 15 days instead on 2,50,000

units. Though the petitioner claimed that it had kept the

2,50,000 units ready by 05-07-2021, the supply of 50,000

units was made only on 17-07-2021. Following this,

another purchase order was issued on 29-07-2021 to

supply 70,000 units and this purchase order bears a

reference to "cancellation of purchase order No.99 dated

20-07-2021". The respondent no.2 claims that the

purchase order dated 29-07-2021 was placed on the

petitioner to supply 70,000 units, as another supplier

against whom a purchase order was issued, failed to

supply. Therefore, it is clear that each purchase order was

a standalone contract entered into between the parties and

had nothing to do with the tender invited by the

respondent no.2 on 22-05-2021. Hence, it would be

difficult for this Court under Article 226 of the Constitution

of India to accept the contention that the respondent no.2

had held out a promise to procure 2,50,000 units and

therefore it has to be hauled up to stick to its promise. In

the facts of the this case, the purchase order was an offer

made by the respondent no.2 to supply the scheduled

drugs at an agreed price within a particular period. The

purchase order would have resulted in a concluded

contract only upon the petitioner agreeing to accept the

terms of the purchase order by executing an agreement

and also furnish a performance security. However, the

documents placed on record suggests, that before the

petitioner could accept the terms of the purchase order,

the respondent no.2 had suspended the purchase order. It

is difficult to accept the claim of the petitioner that despite

the respondent no.2 suspending the purchase order, it

went ahead and manufactured the drug and kept the

entire 2,50,000 units ready by 05-07-2021.

13. In Rishi kiran Logistics (P) Ltd vs. Board

of Trustees of Kandla Port Trust and others, 2015

(13)SCC 233, the Hon'ble Supreme Court held as follow;

"Ordinarily, the remedy available for a party complaining of breach of contract lies for seeking damages. He would be entitled to the relief of specific performance, if the contract was capable of being specifically enforced in law. The remedies for a breach of contract being purely in the realm of contract are dealt with by civil Courts. The public law remedy, by way of a writ petition under Article 226 of the Constitution, is not available to seek damages for breach of contract or specific performance of contract. However, where the contractual dispute has a public law element, the power of judicial review under Article 226 may be invoked. It thus stands crystallized that by way of writ petition under Article 226 of the Constitution, only public law remedy can be invoked. As far as contractual dispute in concerned that is outside the power of judicial review under Article 226 with the sole exception in those cases where such a contractual dispute has a public law element."

14. Likewise, in Joshi Technologies

International Inc vs Union of India AIR 2015 SC Supp

1889, after considering the magnum opus on contracts by

State in Ramanna Dayaram Shetty and the scope of article

226 in matters pertaining to contract in Srilekha Vidyarthi

as well as the law relating to promissory estoppel in

Gujarat SFC vs Lotus Hotels held as follows;

"No doubt, there is no absolute bar to the maintainability of the writ petition even in contractual matters or where there are disputed questions of fact or even when monetary claim is raised. At the same time, discretion lies with the High Court which under certain circumstances, can refuse to exercise."