Delhi District Court
Midascare Pharmaceuticals Pvt Ltd vs Employees State Insurance on 5 September, 2024
IN THE COURT OF SH. SACHIN SOOD
DISTRICT JUDGE-01 ( CENTRAL), THC,DELHI
CS NO. 19193/2016
CNR NO. DLCT01-009984-2016
MIDASCARE PHARMACEUTICALS PVT LTD
A COMPANY INCORPORATED UNDER
COMPANIES ACT, 1956 AND HAVING
ITS REGISTERED OFFICE AT
LOTUS CORP PARK, 'B' WIND, 3RD FLOOR
JAY COACH GRAHAM FIRTH COMPOUND
WE HIGHWAY, GOREGAON (E)
MUMBAI-400063 ..... PLAINTIFF
VERSUS
1. EMPLOYEES STATE INSURANCE
CORPORATION
PANCHDEEP BHAWAN
C.I.G ROAD
NEW DELHI-110002
THROUGH ITS DIRECTOR GENERAL
2. DEPUTY MEDICAL OFFICER
(RATE CONTRACT)
PANCHDEEP BHAWAN
C.I.G ROAD
NEW DELHI-110002
3. DEPUTY DRUGS CONTROLLER (I)
SECOND FLOOR, SHASHTRI BHAWAN ANNEXE
26, HADDOS ROAD
CHENNAI-600006
4. MS P PRIYADARSINI
DRUG INSPECTOR
SECOND FLOOR SHASHTRI BHAWAN ANNEXE
CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 1/23
26, HADDOS ROAD
CHENNAI-600006 ..... DEFENDANTS
Date of institution : 22.01.2015.
Date of judgment : 05.09.2024.
JUDGMENT
1. The plaintiff filed the present suit seeking declaration, recovery and in- junction against the defendants pleading inte-alia as under:-
i. That the plaintiff company is engaged in the business of manufacture and supply of various drugs/pharmaceuticals products to government, semi-government, public and private hospitals/dispensaries etc. all over the country for the last more than 30 years and has earned huge goodwill and reputation in manufacture and supply of the said products over a period of time.
ii. That the plaintiff company in the normal course of its business, participates in tender/rate contracts invited by various governments, semi-governments and public authorities including defendant no. 1 besides others.
iii. That the plaintiff company has been regularly supplying drugs/pharmaceuticals products manufactured by the plaintiff company to various hospitals/dispensaries of the defendant no. 1 in terms of tender/rate contracts awarded to the plaintiff company from time to time for the last 6 years.
iv. That the defendant no. 1 invited tender/rate contracts from the established and reputed pharmaceutical firms for supply of drugs and dressings etc. vide Tender Enquiry No. U-25/12/133/2009- Med.V dated 16.06.2009 and the plaintiff company participated in CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 2/23 the said tender/rate contract and being successful bidder, was awarded the said rate contract for supply of various drugs to the various Employees State Insurance institutions of the defendant no. 1 all over the country vide Rate Contract NO. 133 for the period 17.12.2009 to 16.12.2011 dated 18/21.12.2009.
v. That in pursuance of the award of rate contract as aforesaid, the plaintiff company supplied certain drugs to the Employees State Insurance Corporation's Hospital at K.K Nagar, Chennai (Tamil Nadu) vide invoice No. STE/1770 dated 24.01.2012 for Rs. 4,38,690/- under the said Rate Contract being Rate Contract No. 133. vi. That the plaintiff company submits that the drug i.e. Flusal 250 HFA Inhalation 7.2G bearing Batch No. IL11168 manufacturing date 12/2011, expiry date 11/2013; manufactured and supplied vide the aforesaid invoice dated 24.01.2012 were as per the standard quality as prescribed under Drugs and Cosmetics Act and that the said goods i.e. drugs being flusal 250 HFA Inhalation 7.2G were tested and reported to be of standard quality as prescribed under Drugs and Cosmetics Act; were duly supplied by the plaintiff company to the Employees State Insurance Corporation's Hospital, Chennai and the payment in respect thereof was also received by the plaintiff company in due course.
vii. That on or about 16.02.2013, the plaintiff company received information from Employees State Insurance Corporation claiming that the goods supplied by the plaintiff company to the Employees State Insurance have been reported as "not of standard quality". viii. That it is for the first time that the defendant no. 4 informed the CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 3/23 plaintiff vide her letter dated 26.03.2013 that a sample of the aforesaid goods was drawn by one Sh. Manish Singhal of CDSCO the then Drug Inspector, Chennai.
ix. That the plaintiff company immediately on receipt of the letter dated 26.03.2013 from defendant no. 4, sent a reply dated 02.04.2013 disputing the contents of the test report No. 32-10/2012- SS/DCA(S)-32/2381 dated 17/10/2012 issued by Government analyst, Central Drug Laboratory, Kolkata declaring the sample "not of standard quality" and seeking to challenge the same in accordance with the rules and procedure applicable thereto. x. That vide letter dated 04.04.2013, the defendant no. 4 called upon the plaintiff to furnish certain documents/information and that a copy of the alleged Test Report dated 17.10.2012 alongwith portion of the sample was also made available by the defendant no. 4 to the plaintiff in accordance with the provisions of Section 25(2) and Section 23(4)(iii) of Drugs and Cosmetics Act.
xi. That it may not be out of place to mention here that the plaintiff having received letter dated 26.03.2013 from the defendant no. 4 and having challenged the alleged Test Report dated 17.10.2012 and further having requested the defendant no. 4 to send a sample portion to the Director, Central Drugs Laboratory, Kolkata in accordance with the provisions of Sub-Section 4 of Section 25 of the Drugs and Cosmetics Act.
xii. That the plaintiff sent another letter No. Midas/QA/006 of April 2013 by registered AD post to the defendant no. 4 whereby the plaintiff again reiterated its stand questioning the alleged Test Report dated 17.10.2012 and having already notified its decision of CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 4/23 adducing evidence in contraversion of the said alleged Test Report dated 17.10.2012 besides requesting the defendant no. 4 to send one of the samples for test/analysis to Director, Central Drugs Laboratory, Kolkata in accordance with the provisions of law. xiii. That in the meanwhile, the sample forwarded by the defendant no. 4 to the plaintiff was sent for test/analysis to another Govt. approved independent laboratory namely M/s Manisha Analytical Laboratories Private Limited, holding approval in form 37 under Rule 150-C issued by the drug control authority and that the said government approved independent laboratory after testing the said sample i.e. the portion sent to the defendant by the plaintiff under Rule 23(4)(iii) issued a certificate in form 39 No. F/13/0205/2013 dated 02.05.2013.
xiv. That it is submitted that according to the provisions of Drugs and Cosmetics Act in particular Section 23 Sub-Section 4, it is the duty of the Drug Inspector to produce second portion of the sample in the competent court before which the proceedings are initiated in respect of the said drug alleged to be "not of standard quality". xv. That while the defendant no. 4 forwarded one of the samples to the plaintiff, it later on transpired that the defendant no. 4 failed to produce the sample portion of the drug in the court inspite of the plaintiff having repeatedly disputed and challenged the alleged Test Report dated 17.10.2012 vide letter dated 02.04.2013. xvi. That a perusal of the provisions of Drugs and Cosmetics Act would reveal that the plaintiff having questioned the alleged Test Report dated 17.10.2012 and having challenged the same and further having requested the defendant no. 4 to forward one of the samples CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 5/23 to the Director, Central Drugs Laboratory, Kolkata for analysis/re- examination, the alleged Test Report dated 17.10.2012 could not have been taken as final and/or binding as against the plaintiff. xvii. That the defendant no. 4 again sent a letter dated 15.05.2013, wherein the defendant no. 4 called upon the plaintiff to furnish the sample forwarded by the defendant no. 4 to the plaintiff in the court of the Hon'ble XXIII Metropolitan Magistrate Court, Saidapet, Chennai.
xviii. That in view of the submissions made hereinabove, it is evident that the alleged Test Report dated 17.10.2012 never became final and/or binding so as to entitle the defendant no. 1 and 2 to make any deductions from the amounts due to the plaintiff on account of alleged claim of the drug in question being "not of standard quality".
xix. That the plaintiff has been supplying various other drugs and pharmaceutical drugs to the defendant no. 1 and 2 in normal course and is entitled to receive payments in lieu thereof from the defendant no. 1 and 2 from time to time as per the terms of various tenders/rate contracts in force.
xx. That to the surprise of the plaintiff, the defendant no. 1 and 2 in or about October 2013 illegally and unlawfully started deducting certain amounts from the amounts due and payable to the plaintiff in respect of the other supplies attributing the alleged deductions to the drug in question claiming it to be "not of standard quality" as per the alleged Test Report No. 32-10/2012-SS/DCA(S)-32/2381 dated 17.10.2012.
xxi. That the plaintiff immediately protested against the said deductions CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 6/23 vide letters dated 27.12.2013 and 10.02.2014 on the ground that the recovery being carried out by defendant no. 1 and 2 in the manner was illegal, unlawful and unwarranted. The defendant no. 2 rejected the protest vide letter dated 18.02.2014. The defendant no. 1 and 2 effected the recovery for an amount of Rs. 13,72,750/-. xxii. That the plaintiff against the recoveries as being made by defendant no. 1 and 2 invoked the arbitration clause being Clause No. 35 of the Rate Contract No. 133 and filed a representation dated 03.05.2014 for referring the matter to arbitration which representation was declined by the defendant no. 1 and 2 vide letter dated 04.07.2014.
xxiii. That it is the case of the plaintiff that in the absence of test report/analysis of the Director, Central Drugs Laboratory, Kolkata which is the appellate authority and the defendant no. 1 and 2 were not justified in making any deductions/recoveries in the manner the same were being affected and also that the deductions/recoveries were in complete contravention of the provisions of Drugs and Cosmetics Act and also against the terms and conditions of the tender/rate contract in force.
xxiv. That the plaintiff filed a petition under Section 482 Cr.PC and sought the quashing of criminal proceedings which were pending before the Metropolitan Magistrate, Chennai on the basis of the said very test report dated 17.10.2012. The Hon'ble High Court of Judicature at Madras stayed the further proceedings pending before the Ld. Metropolitan Magistrate.
xxv. Thus on the basis of the aforesaid pleadings, the plaintiff filed the present suit seeking a declaration against the defendants to the CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 7/23 effect that the deductions/recoveries effected by defendant no. 1 and 2 on the basis of test report dated 17.10.2012 are illegal and unlawful.
xxvi. The plaintiff had further sought a recovery of an amount of Rs.
13,72,750/- togetherwith interest @ 24% per annum from the date of the recoveries/ deductions till the date of filing of the suit i.e. Rs, 17,29,045/- alongwith pendente lite and future interest @ 24% per annum together with damages and interest thereupon @ 24% per annum and also a decree for permanent injunction seeking to permanently restrain defendant no. 1 and 2 from making further deductions/recoveries on the basis of the test report dated 17.10.2012.
WRITTEN STATEMENT OF DEFENDANT NO. 1 AND 22. Defendant no. 1 and 2 have filed joint written statement denying that the plaintiff is entitled to recover any amount from defendant no. 1 and 2. The aforesaid defendants have brought out the fact that the rate contract no. 133 was awarded to the plaintiff for the supply of various drugs to various ESI hospitals and dispensaries for the period commencing from 17.12.2009 to 16.12.2011. They further stated that the drug sample (FLUSAL 250 HFA INHALATION 7.2G) was tested by government analyst, Central Drug Laboratory, Kolkata who vide test report dated 17.10.2012 reported that the sample of the drug was not of the standard quality as prescribed under Drugs and Cosmetics Act, 1943 and accordingly, ESIC Hqrs was legally justified in recovering the amount in lieu of the supply of sub-standard drugs from the amounts due and payable in respect of other supply of drugs.
CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 8/23 Since the plaintiff failed to supply the drug as per the prescribed standards as mentioned in the contract.
3. The defendant no. 1 and 2 have justified the recoveries effected by them by placing reliance on Clause 15(iii)(a) and Clause 16 of the terms and conditions of DGESIC Tender Enquiry No. 133. The defendants have further highlighted Clause 40B of the terms and conditions of DGESIC Tender Enquiry No. 133 to contend that the report of only a government/government approved laboratory alone shall be accepted which is in the present case is the Central Drug Laboratory, Kolkata and in case any dispute is raised thereon, only the report of the appellate authority was to be accepted as final and which report by the appellate authority was required to be submitted within a period of 3 months' from the date of communication of the disputed report to the firm.
4. The defendant no. 1 and 2 have submitted that the plaintiff has failed to prefer the disputed report to the appellate laboratory/Central Drug Laboratory, Kolkata which itself is the appellate authority for re- examination/analysis. They further contended that instead of obtaining report of the appellate authority, the plaintiff has obtained the report of M/s Manisha Analytical Laboratories Pvt Ltd which is contrary to the terms and conditions of the DGESIC Tender Enquiry No. 133 and hence the test report obtained from M/s Manisha Analytical Laboratories Pvt Ltd was not accepted and the results of the Central Drug Laboratory were considered to be final.
5. Initially the suit was filed before the Hon'ble High Court of Delhi and pursuant to the notification dated 24.11.2015, the present suit was transferred to the District Courts. Vide order dated 09.04.2015, CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 9/23 defendant no. 3 and 4 were proceeded ex-parte and it was ordered that the deductions made by defendant no. 1 and 2 shall be subject to any directions made by the court.
ISSUES
6. Vide order dated 06.10.2016, the following issues were framed by the Court for adjudication:-
1. Whether the plaintiff is entitled for decree of declaration that deduction/recoveries made by defendants no. 1 and 2 on the basis of test report dated 17.10.2012 are unlawful? OPP
2. Whether the plaintiff is entitled for recovery of Rs. 17,29,045/-? If so, from which of the defendants? OPP
3. Whether the plaintiff is entitled for recovery of damages/compensation of Rs. 3 Lacs? If so, from which of the defendants? OPP
4. Whether the plaintiff is entitled for permanent injunction qua restraint of defendants 1 and 2 from making further deductions/recoveries on the basis of test report of dated 17.10.2012 of Government Analyst? OPP
5. Relief.
EVIDENCE
7. The plaintiff examined one witness i.e. PW-1 namely Sh. Sanghita Gupta who tendered her evidence by way of affidavit exhibited as Ex. PW1/A and relied upon the following documents :-
S.No Exhibits Documents
1. PW-1/1 True copy of Resolution dated
01.09.2014.
2. PW-1/2 Office copy of the invoice no.
STE/1770 dated 24.01.2012 for Rs.
4,38,690/-.
3. PW-1/3 Office copy of letter dated
21.02.2013.
4. PW-1/4 Letter dated 26.03.2013.
5. PW-1/5 Office copy of receipt of letter dated
26.03.2013 from the defendant no. 4.
CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 10/23
6. PW-1/6 Letter dated 04.04.2013.
7. PW-1/7 The original report dated 17.10.2012
received by the plaintiff.
8. PW-1/8 Another letter sent by the plaintiff
vide letter No. Midas/QA/006 of April
2013.
9. PW-1/9 The portion sent to defendant by the
plaintiff under rule 23(4)(III) issued
a report/certificate in form 39 No.
F/13/0205/2013 dated 02.05.2013.
10. PW-1/10 Office copy of letter No.
Midas/QA/007 dated 30.05.2013.
11. PW-1/11 Letter dated 15.05.2013.
12. PW-1/12 Office copy of letter dated
02.04.2013, April 2013, 31.05.2013
and 28.06.2013.
13. PW-1/13 Letter dated 27.12.2013.
14. PW-1/14 Letter dated 10.02.2014.
15. PW-1/15 Letter dated 18.02.2014.
16. PW-1/16 Representation dated 03.05.2013
refused to refer the matter to the
arbitration vide letter No. U-
25/12/NSQ/2013-Med.Vcall dated
04.07.2014.
17. PW-1/17 True copy of order dated 23.07.2014.
18. PW-1/18 Copy of the tender, invoice/document
filed by the plaintiff alongwith the
plaint.
8. The PW-1 was examined-in-chief vide order dated 05.06.2017 and her cross-examination was deferred and thus vide order dated 01.06.2018, the plaintiff was duly cross-examined and the PE was closed on the same date.
9. The defendants also examined only one witness i.e. DW-1 namely Dr.Arun Kumar Gupta who tendered his evidence by way of affidavit as Ex. DW1/A and relied upon only one document i.e. Ex. DW1/1 CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 11/23 which is the Authority Letter issued by Medical Commissioner in favour of the deponent and thus vide order dated 11.02.2019, the DW-1 was examined-in-chief and was duly cross-examined and discharged vide order dated 06.08.2019 and thereafter the matter was fixed for final arguments.
ANALYSIS AND FINDINGS Issue no. 1. Whether the plaintiff is entitled to a decree of declaration that deduction/recoveries made by defendant no. 1 and 2 on the basis of test report dated 17.10.2012 are unlawful? OPP
10. The onus to prove this issue was upon the plaintiff. It is the case of the plaintiff that it was awarded the tender/rate contract no. 133 (Ex. PW1/18) in terms of the terms and conditions thereof. The following terms and conditions for the running rate contract as awarded to the plaintiff are reproduced hereinbelow for a ready reference as follows :-
Clause 14 : Life Period : Drug supplied should not be older that one sixth (1/6) of its shelf life from the date of manufacture.
Clause 15. i) The stores offered should comply with the provisions of the Drugs and Cosmetic Act, 1940 and the Rules made thereunder as amended upto date and Drug Price Control order.
ii) While quoting against items with ISI Mark, it should be ensured that ISI code number is indicated on quotation and at the time of making the supplies, the firm should ensure that the items supplied has ISI Mark as well as Code Number, as is the statutory requirement of the Bureau of Indian Standards. The attested copy of the valid ISIS Marking license issued by Bureau of Indian Standards shoul dbe enclosed alongwith the quotation.
iii) a) If any store/stores supplied against this Rate Contract are found to be not of standard quality on test analysis from approved laboratory and/or on inspection by competent authority, the contractor will be liable to replace the entire quantity or make full payment of entire consignment against the particular invoice irrespective of fact that part or whole of the supplied stores CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 12/23 may have been consumed.
b) If the product is found to be not of standard quality, the cost of testing will be recovered from the supplier.
c) If the firm fails to replace the batch declared to be not of standard quality or fails to make payment in lieu of that, the firm is liable to be debarred for two years in respect of the one or more or all the items in the Rate Contract of the Corporation.
d) If Category A (major) defect is found, the firm will be debarred for three years for one or more or all the products in the Rate Contract of ESI Corporation. The classification of defects into-
A Category (major) and B category (minor) defects will be as per the guidelines issued by the Drug controller General of India. Clause 16: The contractor should also give a guarantee as follows in case of biological and other products having a particular life period to provide safeguard against losses on account of deterioration within their stated period of potency. The contractor/seller hereby declare that the goods/stores/articles sold to the buyer under this contract shall be of best quality and workmanship and shall be strictly in accordance with the specifications and particulars contained/mentioned in the description clauses thereof and the contractor/seller hereby guarantees that the said goods/stores/articles would continue to conforms to their description specification as stated in the contract and that notwithstanding the fact that the purchaser (inspector) may have inspected and/or approved the said goods/stores/articles. It the same be discovered not to conform to the description and quality aforesaid or have deteriorated, the decision of the purchaser in that behalf will be final and conclusive. The purchaser will be entitled to reject said goods/stores/articles or such portion thereof as may be discovered not to conform to the said description and quality. Such rejection of the goods/articles/stores will be at the seller's risk and all the provisions herein contained relating to rejection of goods etc. or such portion thereof if is rejected by the purchaser otherwise the contractor/seller shall pay to the purchaser such damages as may arise by reason of the breach of conditions herein contained. Nothing herein contained shall prejudice any other right of the purchaser in that behalf under this contract or otherwise.
40. Testing of drugs
a) Regular and random testing of drugs will be under taken from Govt/Govt approved laboratories at the time of supply and at any time during the shelf life or whenever any defect is noticed.
b) The report of the Govt/Govt approved laboratory shall be accepted by the firm. In case the same is disputed by the firm giving reasons, the report of the Appellate Laboratory only will be accepted CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 13/23 as final and the same should be submitted with in three months, from the date, the disputed test report is communicated to the firm. For this, the firm should approach the concerned Drug Control Authorities for getting the drugs tested as per procedure from the Appellate Laboratory.
11. As per the case set-up by the plaintiff, upon receiving information on or about 16.02.2013 to the effect that the goods/ medicines supplied by the Plaintiff were not of standard quality by defendant no. 1 and 2, it issued letter dated 21.02.2013 (Ex. PW1/3) thereby calling upon defendant no. 1 and 2 to supply the complaint sample to it which was sent to Govt. Analyst at CDL, Kolkata so as to re-confirm the test report dated 17.10.2012 issued by the Govt. Analyst at CDL, Kolkata. In terms of the admissions made, the sample of the drug in question forming the basis of the Test Report together with the test report issued by Govt. Analyst at CDL, Kolkata was duly received by the plaintiff under the cover of letter dated 04.04.2013 i.e. (Ex. PW1/6). Despite having received the third portion of the sample of the drug in question, the plaintiff issued letter dated April-2013 i.e. Ex. PW1/8 to send the samples portion for test or analysis to the Director, Central Drug Laboratory, Calcutta. It is the case of the plaintiff that thereafter it sent the sample of the drug in question received by it from defendant no. 4 to Govt. approved independent laboratory namely M/s Manisha Analytical Pvt. Laboratories Ltd. and informed defendant no. 4 that as per the test report by M/s Manisha Analytical Pvt. Laboratories Ltd., the drug in question is of standard quality and once again requested defendant no. 4 to get the test report dated 17.10.2012 reconfirmed by the appellate authority i.e. Director, CDL, Kolkata vide letter dated 30.05.2013 (Ex. PW1/10). The defendant no. 4 in response to letter dated 02.04.2013 i.e. Ex.
CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 14/23 PW1/8 informed the plaintiff vide letter dated 15.05.2013 i.e. Ex. PW1/11 that the request for re-testing of the sample made by the plaintiff has been accepted and directed the plaintiff to bring the sealed sample of the subject drug received by the plaintiff in the Magistrate Courts, Chennai. As is evident, despite directions, the sample of the drug in question supplied to the plaintiff despite letter dated 15.05.2013 Ex. 1/11 was not supplied to the defendant no. 4 as per the directions of Defendant No 4 and the same accordingly could not be sent to the appellate laboratory and the Plaintiff instead has been making reference to Section 25(4) of the Drugs and Cosmetic Act, 1940 to impress that it was the discretion of the court to send the sample of the drug in question produced before the magistrate for test or analysis to the appellate authority.
12. The plaintiff has accordingly contended that the entire recoveries/ deductions based upon the test report dated 17.10.2012 (Ex. PW1/2) issued by the Government Analyst, Central Drug Laboratory as effected by defendant no 1 and 2 to the tune of Rs. 13,72,750.00/- was illegal, unlawful and arbitrary since the said test report had not become final in the absence of not sending the sample of the drug in question to the appellate authority i.e. Director CDL, Kolkata. In order to prove this issue, the plaintiff was required to prove that the test report Ex. PW1/7 dated 17.10.2012 was not conclusive and recovery/deductions were made by defendant no. 1 and 2 on the basis of inconclusive test report which were unlawful/illegal.
13. In order to prove this issue, the plaintiff has relied upon the testimony of PW-1 who was the Managing Director of the plaintiff. PW-1 in her cross-examination has clearly admitted Clause 40(b) of the terms and CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 15/23 conditions for the awarded contract as per which the Central Drug Laboratory, Kolkata was admitted by her to be the only appellate authority as per the tender documents who also admitted having received the letter dated 26.03.2013 (Ex. PW1/4) vide which the plaintiff was informed that the subject sample was sent for test or analysis was declared as not of standard quality by the Govt. Analyst, Central Drugs Laboratory, Calcutta vide its test report dated 17.10.2012. PW-1 further admitted that defendant no. 4 supplied one sample of the drug in question to the plaintiff for re-testing/re- examination of the test report dated 17.10.2012. PW-1 further admitted that in case the plaintiff disputes the test report, the said report can only be challenged before the Appellate Authority to attain finality. She further admitted that the samples supplied to the plaintiff of the drug in question was not sent to the appellate authority by the plaintiff and was instead sent to the Govt. approved laboratory. She further admitted that in terms of Clause 15(iii) (a) of the terms and conditions of the tender in case the store/stores supplied against the contract are found to be not of standard quality on test analysis from approved laboratory and/or on inspection by competent authority, the contractor was liable to replace the entire quantity or make full payment of entire consignment against the particular invoice irrespective of fact that part or whole of the supplied stores may have been consumed. PW-1 further admitted that clause 16 of the terms and conditions of the tender, whereby the plaintiff by the fact of supplying of goods/stores/articles has given a declaration that the goods supplied are of best quality and workmanship who further guaranteed that the goods/stores/articles would continue to confirm to their description, specification as stated in the contract irrespective of CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 16/23 the fact whether the purchaser may have inspected and/or approved the said goods/articles/stores.
14. A bare perusal of Clause 40(b) goes to show that the aforesaid condition of the contract enjoins upon the plaintiff to submit the test report of the appellate authority to the defendants within three months from the date the disputed test report is communicated to the plaintiff. The plaintiff, despite directions given vide letter dated Ex. PW1/11 failed to furnish the sample of the drug in question and accordingly the same could not be sent for retesting to the appellate laboratory. As per the aforesaid condition, it was the duty of the plaintiff to approach the concerned drug control authorities for getting the drug in question tested as per the procedure from the appellate laboratory. The plaintiff all throughout during the shelf life of the drug, failed to comply with the directions as given by the defendant no. 4 and has not produced the sample of the drug received by it for the purpose of getting the same retested by the appellate laboratory and has thus failed to adhere to Clause 40(b) of the terms and conditions for the running rate contract as awarded to it. All throughout, the plaintiff has been taking shelter behind Section 25 of the Drugs and Cosmetics Act, 1940, Sub-Section (3) thereof clearly provides that the document purporting to be a report signed by the govt analyst shall be evidence of the facts stated therein and such evidence shall be conclusive unless the aggrieved person within 28 days thereof of the receipt of the copy of the report notified in writing to the inspector or the court before which any proceedings in respect of the sample are pending that he intends to adduce evidence so as to controvert the report. Sub-Section 4 of Section 25 of the Drugs and Cosmetic Act further provides that unless the sample has already been CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 17/23 tested or analysed in the Central Drugs Laboratory, where a person has under Sub-Section 3 notified his intentions of adducing evidence in controversion of the govt analyst's report, the court may of its own motion or in its discretion at the request either of the complainant or the accused cause the sample of the drug or cosmetic produced before the magistrate under Sub-Section 4 of Section 23 to be sent for test or analysis to the said laboratory which shall make the test or analysis and report in writing signed by, or under the authority of, the director of the central drug laboratory, the result thereof and such report shall be conclusive evidence of the facts stated therein.
15. In the present matter, firstly Ex. PW1/7 has been issued by the govt analyst, central drugs laboratory which in itself is conclusive evidence of the fact that the plaintiff supplied sub-standard drugs. Even as per Clause 4 of Section 25 of the Drugs and Cosmetics Act, the sample of the subject drug in question has already been tested and analysed in Central Drugs Laboratory and despite directions given to the plaintiff vide Ex. PW1/11, the plaintiff failed to produce the sample of the subject drug in question for the purposes of it being sent to the appellate laboratory. As per the terms and conditions of the tender, it was the duty of the plaintiff to submit the report of the appellate laboratory within three months from the date the disputed test report is communicated to the plaintiff. The plaintiff despite opportunity and direction failed to submit the sample of the drug in question received by it from defendant no. 4 and had instead got the sample received by it tested from M/s Manisha Analytical Laboratories Pvt Ltd. which was not the appellate laboratory hence even in terms of Section 25 (3) of the Drugs and Cosmetics Act, and as such the test report dated 17.10.2012 (Ex.
CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 18/23 PW1/7) remained conclusive. The plaintiff in the present case has not led any evidence even of any expert witness to controvert the findings of the test report dated 17.10.2012 which had attained finality. PW-1, in her cross-examination has admitted the fact that the only appellate authority approved by defendant no. 1 and 2 is Central Drug Laboratory, Kolkata and also the fact that the sample of the drug in question stood supplied to the plaintiff for retesting/re-examination of the test report dated 17.10.2012. The plaintiff, despite having been supplied with the same failed to take steps for sending the same to the appellate laboratory and to act in accordance with condition 40(b) of the terms and conditions of the tender and has failed to submit report of the appellate authority and had further failed to co-operate with the Drug Control Authority for getting the sample of the subject drug in question sent and tested by the appellate authority. PW-1 further in her cross- examination has also admitted Clause 15(iii)(a) whereby in case any store/stores supplied against the rate contract are found to be not of standard quality on test analysis from approved laboratory, the plaintiff was liable to replace the entire quantity or make full payment of entire consignment against the particular invoice irrespective of the fact that part or whole of the supplied goods may have been consumed. Accordingly, the defendant is within its rights to take action in accordance with clause 15(iii) (a) and (c) on the basis of test report dated 17.10.2012. Hence in view of the aforesaid facts and admissions made by PW-1, the present issue is decided against the Plaintiff.
Issue no. 2 i.e. Whether the plaintiff is entitled for recovery of Rs. 17,29,045/-? If so, from which of the defendants? OPP
16. The Onus to prove this issue was on the Plaintiff. The plaintiff in the CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 19/23 plaint as filed by him has stated that pursuant to the award of the rate contract, it supplied certain drugs to employee's State Insurance Corporation Hospital at K.K Nagar, Chennai vide invoice dated 24.01.2012 i.e. Ex. PW1/2 for an amount of Rs. 4,38,690/- which were reported to be of sub-standard quality and that on the basis of test report dated 17.10.2012, defendant no. 1 and 2 have illegally and unauthorizedly made deductions/recoveries for an amount of Rs. 13,72,750/- from the amounts due and payable to the plaintiff in respect of the other supplies. Although in the Plaint and also in the examination in chief of PW-1, various bills/ invoices etc. alleging recovery/ deductions have been mentioned however they have been neither produced nor proved by the Plaintiff. The Plaintiff has also not disclosed in the Plaint about the details of the remaining supplies of the drugs manufactured under the particular batch in question to the Defendant or the amount received in lieu of the aforesaid supplies.
17. The Plaintiff in support of the present issue has merely relied upon the testimony of PW-1 who has stated that Defendant No 1 and 2 have made unlawful deductions/ recoveries from the amounts payable to the Plaintiff vide various recovery letters and have affected recoveries from various bills for an amount of Rs. 13,72,750/-. However, neither the copy of such recovery letters nor the copy of the bills/invoices as raised by the Plaintiff or any other details of the contract under which such bills have been raised from which the recoveries are stated to have been affected has been placed on record. So much so even the ledger accounts showing the amount received in respect of the supplies of the drug in question manufactured under the particular batch number and also the bank account statements showing the consideration received against the CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 20/23 supply of the quantity of the drug in question under the contract have not been filed or proved on record. The Plaintiff has also not produced the letter dated 17.12.2013 on the basis of which recovery proceedings were initiated by the Defendants under clause 15 (iii) (a) and 16 of the contract. Further, it is also not the case of the Plaintiff that it supplied the drug in question to the defendant only against the invoice dated 24.01.2012 of tender/rate contract no. 133 (Ex. PW1/18) or that no other supply of drugs manufactured under the batch No 111168 were in fact supplied to the Defendant.
18. The entire case of the Plaintiff is based upon the recoveries effected on the basis of Test Report dated 17.10.2012, which already stands upheld by this Court, while returning findings on issue no.1. However, the smartness of plaintiff of not disclosing the complete facts become evident before this Court from the perusal of the reply Ex. PW1/13, which is written by the plaintiff to the defendants in reply to letter dated 17.12.2013, whereby the defendants have sought recovery of cost of entire batch of the drugs found to be not of standard quality on the basis of test report dated 17.10.2012, as per the terms of the conditions of the contract. It is only for this reason that despite the drugs worth Rs. 4,38,690/- were found to be not of standard quality, the defendants have started deducting the cost of entire batch of the drugs supplied under the batch number in question on the basis of test report from the subsequent amounts to be paid to the plaintiff against subsequent supplies of that particular batch in accordance with the conditions of the contract.
19. No doubt at the stage of hearing final arguments, clarification was sought by this Court from the Counsel of defendant that why against the invoice of Rs. 4,17, 800/-, an amount of Rs. 15,66,750/- was deducted by CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 21/23 the defendants and he failed to clarify the same but in the considered view of this Court, once the plaintiff failed to discharge the initial burden, the onus cannot be shifted upon the defendants, in other words, cart cannot be placed before the bull.
20. Hence, once the plaintiff failed to prove the foundational facts for the relief claimed vide issue no.2 and also in view of the findings on issue No 1, this issue is also decided against the Plaintiff in favour of the defendant.
Findings on Issue No 3 and 4: Issue No 3: Whether the plaintiff is entitled for recovery of damages/compensation of Rs. 3 Lacs? If so, from which of the defendants? OPP Issue No 4 : Whether the plaintiff is entitled for permanent injunction qua restraint of defendants 1 and 2 from making further deductions/recoveries on the basis of test report of dated 17.10.2012 of Government Analyst? OPP
21. The two issues being interconnected are being decided together. The Plaintiff in the plaint has claimed an amount of Rs. 3,00,000/- towards Damages/compensation from the defendants for undue harassment due to the Plaintiff and its directors/employees on the ground of failure on the part of the defendants to send the second portion of the sample to the Appellate Drug Authority, Kolkata for re-examination/analysis and also towards unauthorised deductions/ recoveries. However, in terms of findings on issue No 1 and 2 it is clear that the sample of the subject drug in question had already been tested and analysed in Central Drugs Laboratory and despite directions given to the plaintiff vide Ex. PW1/11, the plaintiff failed to produce the sample of the subject drug in CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 22/23 question for the purposes of it being sent to the appellate laboratory. Further since as per the terms and conditions of the tender, it was the duty of the plaintiff to submit the report of the appellate laboratory within three months from the date the disputed test report is communicated to the plaintiff and since the plaintiff despite opportunity and direction failed to submit the sample of the drug in question received by it from defendant no. 4 and had instead got the sample received by it tested from M/s Manisha Analytical Laboratories Pvt Ltd. which was not the appellate laboratory hence it cannot be said that the defendants were at fault in as much as not sending the sample of the second portion to Appellate Drug Authority, Kolkata. Moreover, in terms of findings on issue No 1 and 2, since the Plaintiff has failed to prove that recoveries/ deductions were in fact effected unlawfully, issues No 3 and 4 are also decided against the Plaintiff since as per condition 15 (iii) (a) of the contract, it is the liability of the Plaintiff to either replace the entire quantity or make full payment of entire consignment in case any store/stores supplied against the Rate Contract are found to be not of standard quality on test analysis from approved laboratory for which due guarantee has been provided by the Plaintiff to the Defendants under clause 16 of the Contract.
22. In view of the aforesaid findings, the suit of the Plaintiff is hereby dismissed.
23. Decree sheet be prepared. No order as to costs.
24. File be consigned to Record Room after necessary due compliance.
Digitally
signed by
Announced in the Open Court (SACHIN
SACHIN SOOD) SACHIN SOOD
Date:
SOOD 2024.09.05
on 05 September 2024. DJ-01/ Central District
16:25:36
+1100
Tis Hazari Court/Delhi.
CS No. 19193/2016 Midascare Pharmaceuticals Pvt Ltd vs. Employees State Insurance Corp Page no. 23/23