Inflicted with adverse order you have a right of minimum opportunity of hearing

Sarthak Khandelwal | Kirit P. Mehta School Of Law, NMIMS University, Mumbai | 17th December 2019

M/S Daffodills Pharmaceuticals Ltd. & Anr. V. State of U.P. & Anr.

Facts of Case

The appellant, a pharmaceutical supplier, is aggrieved by a decision of the Allahabad High Court, rejecting its challenge to an order issued by the Principal Secretary, Government of U.P. on 21..08.15 to its Medical and Health Department, directing it to stop local purchase from the appellant.

Daffodills had participated in a tender processto supply various categories of pharmaceutical products to state. And The successful bidder was required to supply medicines to various hospitals, under the control of the Medical and Health Department, U.P. for one year. And in the said process his bid was accepted by the respondent.

And At the time of bid submission,every tenderer/bidder had to furnish a declaration to the following effect:

“Firms should give an affidavit that there is no Court Case/Vigilance Case/CBI Case pending against the firm. All the documents given in the tender are true. If found false/fake the person/firms will have to be accepted by the firm. (Court case means “Criminal Case” against firm/board of Director/Directors/principal stock holder as per relevant law)”.

While so, on 21.08.2015, the impugned letter/notice was issued by the Principal Secretary to the Government of U.P. stating that a FIR had been lodged against Daffodills alleging that it had committed offences, and that the Central Bureau of Investigation was inquiring into the issue. Therefore Department of Health was directed to stop all procurements from the appellant.

Daffodills said that the criminal case was filed against Mr. Surender Chaudhary, an erstwhile Director, who had ceased to have any connection with Daffodills from 22.02.2012. Besides, it was argued that the decision not to procure, amounted to blacklisting and that it was issued without notice or predecisional hearing and was consequently liable to be set aside.

The High Court observed that in matters of contractual disputes relating to policy decisions, the scope of jurisdiction under Article 226 is limited and  therefore, it could not be assumed that the action of the State Government was unreasonable or contrary to public interest.

The High Court said that:

It is clear that when there is a failure on the part of the contractor  to comply with the express terms of the contract and/or to commit breach of the said terms resulting into failure to commence/execute the work or supply the items as per specification as stipulated in the agreement or giving the performance that does not meet the statutory requirements of the contract or the action of the petitioner is reported against the provisions and against the interest of the State, the Department has a right to regulate its business through various directions to State Agencies in which the petitioner has no right to interfere.

The appellant said that decision is erroneous because the High Court overlooked that Surender Chaudhary has resigned as Director, way back in 2012.  Therefore, his being implicated in the criminal case could not have resulted in an adverse impact on the business of the appellant. appellant also said that the High Court committed an error in overlooking binding decisions of this Court (including Rastriya Ispat Nigam v. Verma (2006) 7 SCC 275 and Kalja Industries v. Western Telecom (2014) 14 SCC 731), which clearly held that before proposing to pass a blacklisting or debarring orders, the parties had to be given hearing followed by an appropriate reasoned order.

State said that the order made by it directing the officials of the Health Department to discontinue procurement, does not amount to a debarring order. And it was urged that Surender Chaudhary was acting in the capacity of Director of Daffodills, for which he was charged of various offences by the CBI. One of those was of having fictitious accounts of supply to various individuals and persons in order to obtain procurement orders from the State.

Learned counsel submitted that having regard to these facts, the order made by the Principal Secretary (on 21.08.2015) was only a direction to not procure medicines locally from the appellant; it could not be characterized as a debarring or blacklisting order.

HELD

The supreme court held 

That the order is nothing but an order or a directive, debarring and preventing the State of U.P.  from local purchase of medicines from Daffodills for an indefinite duration.  Unlike a “normal” blacklisting order which has a finite life span (of three or maximum five years), the indefinite directive (which appears to be co-terminus with the lifetime of the criminal case) is facially far more disproportionate than a blacklisting order.  Even as on date, it is not clear whether formal charges have been framed against the accused i.e. Surender Chaudhary.

In the present case, Surender Chaudhary has the pending criminal case was involved and had sought to indulge in objectionable activities, that could not have resulted in unilateral action of the kind which the State resorted to- against Daffodils, which was never granted any opportunity of hearing or a chance to represent against the impugned order. that no one can be inflicted with an adverse order, without being afforded a minimum opportunity of hearing, and prior intimation of such a move. 

No doubt the High court had refused to grant relief to Daffodils against its plea of wrongful rejection of its tender. However, what the impugned judgment clearly overlooks is that the action of the state, not to procure indefinitely, on an assumption of complicity by Daffodils, was in flagrant violation of principles of natural justice.

The said order of the Principal Secretary, Government of U.P. directing all concerned departments to desist from resorting to local purchase from the appellant is hereby quashed. The impugned judgment of the High Court is hereby set aside. The appeal is allowed in the above terms.