Blacklisting, Having Serious Civil Consequences, Must Strictly Follow Tender Document Procedures: SC

The Supreme Court has held that a person sought to be penalised on the basis of a laboratory test of a drug sample has a valuable right to challenge the report through testing by a superior laboratory.

A Bench of Justices Vikram Nath, Augustine George Masih and Sandeep Mehta said that where the State fails to provide such an opportunity, or causes delay resulting in the expiry of the drug's shelf life, punitive action based solely on the initial adverse report cannot be sustained.

The Bench made the observation while allowing an appeal filed by M/s JPEE Drugs against its blacklisting and debarment by authorities in Madhya Pradesh.

Court held that the authorities had failed to follow the mandatory procedure prescribed under the tender document for second-sample testing. Since the subsequent delay also resulted in the expiry of the drug batches, the appellant-firm lost the opportunity to have the adverse test reports independently verified.

Court said that this procedural failure, coupled with the loss of the opportunity for re-testing, rendered the blacklisting and debarment orders unsustainable.

The Bench emphasised that administrative or contractual actions such as blacklisting, which carry serious civil consequences, must strictly comply with the procedures stipulated in the tender document.

"Having held so, we are of the view that it was not justified for the high court to defer quashing the blacklisting orders contingent upon the fresh quality test reports being received," the Bench said.

The case arose from a tender floated by the Department of Public Health and Family Welfare through M.P. Public Health Services Corporation Limited, Bhopal, for the supply of drugs to various government hospitals in Madhya Pradesh.

The appellant, a licensed firm engaged in manufacturing and supplying medicines to government hospitals, was awarded the contract to supply Ascorbic Acid (Vitamin C) Tablets IP 500 mg and Ethambutol Hydrochloride Tablets IP 400 mg.

The firm subsequently supplied the medicines to various government hospitals and health centres across the State.

On September 23, 2024, the authorities issued a show-cause notice to the firm seeking an explanation as to why it should not be blacklisted after the supplied drugs failed quality tests. The test reports declaring the concerned batches as "Not of Standard Quality" were also supplied with the notice.

Four batches of the drugs supplied by the firm were declared to be of not standard quality.

The authorities subsequently debarred the firm for two years from supplying Ethambutol Hydrochloride Tablets IP 400 mg and directed it to deposit the batch value of Rs 3,47,375.

By another order, the firm was blacklisted for three years and prohibited from participating in future tenders issued by MPPHSCL after three batches of Ascorbic Acid (Vitamin C) Tablets IP 500 mg were declared NSQ. It was also directed to deposit the aggregate batch value of Rs 6,77,219.

On October 1, 2024, the authorities rejected the firm's reply and representation and reiterated the blacklisting and debarment decisions passed on September 30, 2024.

The firm challenged the orders before the Madhya Pradesh High Court. Its writ petition and subsequent review petition were dismissed.

Before the Supreme Court, the firm's counsel pointed out that the high court itself had noted that the medicines had not expired and could still be tested by another laboratory. However, although the high court directed fresh testing of the samples at the Central Government Laboratory, it declined to quash the blacklisting orders and instead made their continuation dependent on the outcome of the fresh testing.

The counsel argued that blacklisting and debarment were punitive in nature and carried serious civil consequences. Since the authorities had not followed the procedure prescribed under the tender document or the principles of natural justice, the orders deserved to be quashed.

The Supreme Court agreed.

The Bench noted that the high court had itself found the authorities' action to be flawed because the blacklisting orders were passed without complying with Clause 6 of Annexure IX to the tender document.

The clause required a second sample to be drawn from the concerned batch and sent to another laboratory for quality testing after an adverse report declaring the drug to be of not standard quality.

The Bench noted that this mandatory procedure was admittedly not followed before the blacklisting and debarment orders were passed.

Court further noted that the high court had directed the authorities to draw fresh samples and send them to the Central Government Laboratory within 15 days of its order.

However, the re-testing was not carried out even after the Supreme Court stayed the operation of the blacklisting orders, to the extent of the firm's blacklisting, in May 2026.

"Even proceeding on the latter date, the last date of all four batches has since expired. The direction for re-testing, which was intended to facilitate an independent determination of the quality of the drugs in question, has, in these circumstances, lost its purpose and stands frustrated by efflux of time," Court said.

The Bench said that although the proceedings concerned administrative and contractual action rather than prosecution under the Drugs and Cosmetics Act, the firm had been subjected to serious civil consequences on the basis of Government Analyst reports.

The failure to follow the procedure under Clause 6, followed by non-compliance with the high court's direction for re-testing within the stipulated period, deprived the firm of an effective opportunity to challenge the reports forming the basis of the punitive action, it said.

The subsequent expiry of the drug batches rendered that opportunity meaningless.

"In these circumstances, the respondents cannot be permitted to sustain the impugned punitive action on the strength of reports which the appellant-firm was denied an effective opportunity to controvert despite its entitlement under the Tender document. The procedural infirmity, coupled with the irretrievable deprivation of the opportunity for retesting, renders the orders of blacklisting and debarment unsustainable in law," the Bench said.

Court accordingly quashed the orders passed by the competent authority and set aside the high court's orders to the extent that they declined to quash the blacklisting orders and made their continuation contingent upon the outcome of re-testing.

The appeals were accordingly allowed.

Case Title: M/s JPEE Drugs Vs State of Madhya Pradesh And Others

Bench: Justices Vikram Nath, Augustine George Masih and Sandeep Mehta

Date of Judgment: October 06, 2026