Delhi District Court
Vivek Pharmachem (India) Ltd vs Govt. Of National Capital Territory Of ... on 31 May, 2023
IN THE COURT OF MS VINEETA GOYAL,
DISTRICT JUDGE (COMMERCIAL)-03,
PATIALA HOUSE COURTS, NEW DELHI
OMP (Comm) No. 124/2021
Vivek Pharmachem (India) Ltd
Regd. Office at A1, Sethi Colony,
Jaipur, Rajasthan302004
....... Petitioner
versus
Govt. of National Capital Territory of Delhi
Through Director Health Services,
Central Procurement Agency,
Dispensary Building,
S1, School Block, Shakarpur,
Delhi110052
....... Respondent
Date of institution of suit : 13.12.2021
Judgment reserved on : 11.05.2023
Date of Judgment : 31.05.2023
Appearance: Ms. Ruchi Kashyap, ld. Counsel for the
petitioner.
Sh. Mukesh Kumar, ld. Counsel for the respondent.
OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi
Page 1 of 29
JUDGMENT
1. The instant petition has been filed by the petitioner under Section 34 of the Arbitration and Conciliation Act (hereafter referred as the 'Act') against the Arbitral award dated 25.02.2010 in Arb. Case Ref. No. DAC/2359/01-19, titled as, M/s Vivek Pharmachem (India) Ltd v/s Govt. Of NCT of Delhi through Director Health Services.
2. The petitioner (claimant therein), in the Arbitration proceedings has challenged the letter/notice/order dated 11.05.2018 issued by respondent raising demand of Rs. 27,42,965/- and another order dated 31.05.2018 thereby the petitioner (claimant therein) was Blacklisted from the supplies of drug Azithromycine 500 mg to the respondent. Ld. Arbitrator has dismissed these claims of the petitioner sought arising out of Contract Agreement No. 544 dated 25.05.2015 against Tender Reference No. 1501/2015-16 issued by Central Procurement Agency (CPA) of the respondent GNCTD- DHS regarding supply of drugs and medicines to the respondent.
3. The facts briefly, extracted from the pleadings are that the petitioner is a manufacturer of Drugs (Medicines) and participated in E-tender dated 13.11.2014 issued by the respondent for supply of medicines. On successful bidding and selection, the petitioner commenced supply of medicines to the respondent. However, the dispute arose on 04.10.2016 when it was alleged that the OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 2 of 29 respondent received a complaint from District Store South vide its letter no. F-10(5/CDMO)(South)/District Store (South)/DW/2016- 17/122 dated 04.10.2016 regarding sub-standard supply of medicine namely Azithromycin-500 in Batch No. AZT15007 and AZT16002. It was mentioned in(on) the complaint that the tablets of the said medicine were "Too friable" and the same is not possible to take out intact tablet from the blister pack. In the abovementioned complaint, the said store also mentioned that the Samples of the Medicine from the mentioned batches are sent. It is the case of the respondent that acting on the said complaint, the samples of three batches (AZT15007, AZT15008 and AZT16002) of Azithromycin-500 supplied by the petitioner were got tested for quality from SHREE KRISHNA ANALYTICAL SERVICES (an Empanelled Laboratory) which submitted three separate reports being Report no. SKF - 040816052 dated 10.10.2016 in respect of Batch AZT15007, Report no. SKF - 040816053 dated 10.10.2016 in respect of Batch AZT15008 and Report no. SKF - 270217067 dated 06.03.2017 in respect of Batch AZT16002. These reports in the relevant column for Description of samples have mentioned as under:-
Report no. SKF Yellow coloured elongated
- 040816052 biconvex scored film coated
tablets. But film in not
properly binding and stick
on the side.
Report no. SKF Yellow coloured elongated
OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi
Page 3 of 29
040816053 biconvex scored film coated
tablets. But film in not
properly binding and stick
on the side.
Report no. SKF Yellow coloured elongated
- 270217067 biconvex scored film coated
tablets. But film in not
properly binding and stick
on the blister while opening
the foil due to gain of
moisture.
3.1. It is the case of the respondent that after getting the first two Reports dated 10.10.2016, the respondent vide letter dated 18.10.2016 informed the petitioner about the drug being not of standard quantity. Subsequently, based on the above-mentioned three reports of the Laboratory, Show Cause Notice dated 26.03.2018 was issued and thereafter considering the facts of the case, the respondent passed an order dated 11.05.2018 seeking recovery of an amount of Rs. 27,42,965/- Another order was passed on 31.05.2018 thereby the petitioner /claimant was blacklisted for a period of two years.
3.2. Invoking the Arbitration clause of the Tender Document, the instant Arbitration were got mounted by the petitioner which culminated into the impugned Arbitral award dated 25.02.2020.
OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 4 of 29
4. In the present petition, the petitioner has submitted that the impugned arbitral award is in contravention with fundamental principles of law and is vitiated by patent illegality apparent on the face of the record. The Arbitral Tribunal failed to take note of the fact that whole defence set up by the respondent was false and concocted with malafide and ulterior motives. The Ld. Arbitral Tribunal has failed to ignore the fact that samples for testings were required to be collected from different hospitals as envisaged under Clause 1.2.1 (b) of the Tender document and from such collection from different sources, sample was to be sent. It is further submitted that arbitral tribunal has failed to ignore the fact that reports had been got manipulated by the respondent, as is apparent from the fact that no supply of Batch No.AZT15008 was made to District Drug Store (South), then how could the complaint for the said Batch be received from the said store. It is contended that entire process has started from a complaint allegedly dated 04.10.2016 filed by District Store South about the quality addressed to Quality Assurance officer, CPA Cell, Delhi. In the said complaint, it has been submitted that a letter was received from DGD Sarai Kale Khan regarding substandard quality of tablet Azithromycin-500mg in respect of two batches of the drugs and the batch number has been mentioned as a AZT15007 and AZT16002. In the said complaint, it has been mentioned that the samples of drugs of these two batches are enclosed for further necessary action. This complaint was processed immediately and samples from two batches were sent to the laboratory for their testing.
OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 5 of 29 However, the samples which were sent for testing to the laboratory were from the batches AZT15007 and AZT15008 and these samples were given code batch number CPA/COM/OCT16/1 and CPA/COM/OCT 16/2 respectively. It is contended that the samples were sent to the laboratory on the same day, that is on 04.10.2016 but it has not been clarified how the samples of Batch AZT15008 were received by the respondent authority.
4.1. Further, it is submitted by the petitioner that the Laboratory has after the testing these samples given two reports both dated 10.10.2016 being Report no. SKF - 040816052 (for batch AZT15007) and Report no. SKF - 040816053 (for batch AZT15008). A careful perusal of these two reports show that as per the Laboratory record the samples from both batches were received on 04.08.2016, whereas the record of the respondent mentioned that the samples were sent on 04.10.2016. This discrepancy of dates was highlighted before the Ld. Arbitrator, but there are no findings recorded by him on this point. It has been argued on behalf of the petitioner that the process of sampling adopted by the respondent was extremely shoddy because the samples have been taken at the back of the petitioner without giving intimation that the samples are sent to the laboratory for testing. The relevant reports from the laboratory also mention that the entire sample sent to them has been consumed in analysis which leaves no opportunity for the petitioner to get it tested from the Government laboratory. The Tender Document provides that in case of any adverse report OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 6 of 29 from the Empanelled Laboratory, the petitioner can get sample tested from the Government Laboratory. It has been argued on behalf of the petitioner that a number of communications were made to the respondent seeking copy of reports given by above mentioned Empanelled Laboratory and another request was repeatedly made to the respondents to get the samples tested from Government Laboratory as provided in the Tender Document, but the respondent did not reply and accept the requests. There was serious breach of Principles of Natural Justice committed by the respondent. This was highlighted before Ld. Arbitrator but no findings have been recorded on this aspect which makes the impugned Arbitral Award unsustainable.
4.2. Another issue raised by the petitioner was that in the aforesaid complaint dated 04.10.2016, the complainant has mentioned two batches of the Drug bearing number 15007 and 16007 whereas on 04.10.2016, the sample sent for laboratory testing was 15007 and 15008, it has not been explained as to why the sample 16007 was kept pending and was not sent for laboratory testing on 04.10.2016 because as per record, it was approved for sending for testing on 08.02.2017 whereas the laboratory testing Report no. SKF - 270217067 for this batch mentions that Sample was received on 27.02.2017. The discrepancy has not been explained by the respondent and has not been considered by the Ld. Arbitrator while passing impugned award. It has been argued by the petitioner that delay in sending samples vitiates the process.
OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 7 of 29 4.3. The petitioner has also attacked the action of the respondent for not providing opportunity of being heard by stating that the first intimation sent to it was in the form of a letter dated 18.10.2016, which simply stated that the drug samples were not of standard quantity therefore the petitioner was asked to follow the procedures as per the terms and conditions of the relevant tender. This letter was not accompanied with any laboratory report. The petitioner claims that the copy of report has been sought from the respondent vide letter dated 22.11.2016 and 22.02.2017. The respondent has failed to give opportunity to the petitioner to get the drugs tested from Government laboratory and also did not provide the Laboratory reports of SREE KRISHNA ANALYTICAL SERVICES Laboratory which is not adequately equipped to carry out the testing. It is contended that the Ld. Arbitrator has totally misconstrued the terms of the contract and wrongly interpreted the clauses contained therein. The Ld. Arbitrator ignored the fact that there was no record from Goverment Analyst and Government Testing Laboratory to warrant any action against the petitioner under clause 1.2.4. It is asserted that the impunged award passed by the Ld. Arbitrator is liable to be set aside.
5. Per Contra, the respondent has argued that the impugned award is a reasoned award, which is based on the facts of the case. It is well settled law that while considering the objection against the award, the court is not under obligation to re-examine and re-
OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 8 of 29 appreciate the evidence considered by the Ld. Arbitrator as if sitting in appeal over the award. The court is not empowered to substitute its own view of finding in place of the view or the findings recorded by Ld. Sole Arbitrator. It is settled law that the Arbitral Tribunal is the master of Evidence and the findings of facts which are arrived at by the arbitrators on the basis of evidence on record are not to be scrutinized as if the court was sitting in appeal.
5.1. It is submitted that the respondent has followed due procedure in getting the important drug tested through Empanelled Laboratory when the complaints about Quality were received. Ld. Counsel on behalf of respondent has argued that discrepancy in the date of receipt of samples in the Laboratory reports is typographical error. The argument is further supported by referring to the Code Batch number, which is appearing on both the reports. This code Batch number was assigned on 04.10.2016 while sending samples for testing and a copy of note-sheet is placed on Arbitration record.
5.2. It is further submitted that based on test reports received in respect of three batches, necessary intimation was sent to the petitioner and the Drug Controller of GNCTD and Rajasthan on / vide letter dated 18.10.2016 and 16.3.2017 for further action. These authorities are separate and independent and it was up to them to provide opportunity for testing of samples by Government Laboratory. Further, the in-house testing reports done by the OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 9 of 29 petitioner was never provided to the respondent. Also the testing got done by the petitioner through Devansh Testing Laboratory is unacceptable because the samples sent to this Laboratory were not encoded for Batch for ensuring confidentiality of supplier. Further referring to sub-clause (iv) of clause 1.2.1 (e) and Clause 1.2.1 (g) of Tender document, it was submitted that decision of CPA / DHS was final. Further, Clause 13.1 of the Tender document also empowers for recovery of the price/amount in respect of drug being not of standard quantity, thus, the order of recovery was justified.
5.3. It was submitted and argued by the respondent that due procedure has been followed during the entire process, thus, the impugned Arbitral Award was justified in rejecting the claim of the petitioner.
6. I have heard arguments advanced by Ld. Counsels for the parties and gone through the arbitral record.
6.1 The scope and gamut of section 34 of the Act is very limited has been under judicial scrutiny for a long time. Before devolving into contentious issues, it is relevant to refer section 34 of the Act as follows:-
"34.Application for setting aside arbitral award- (1)Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3).
OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 10 of 29 (2)An arbitral award may be set aside by the court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation- I For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India only if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81."
ii) It is in contravention with the fundamental policy of Indian law;
OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 11 of 29
iii) It is in conflict with the most basic notions of morality or justice.
Explanation-II- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
[2 (A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the court, if the court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
6.2. Normally, the general principles are that the decision of the Arbitrator unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even if the court as a court of law would come to a different conclusion on the same facts. The court cannot reappraise the evidence and it is not open to the court to sit in appeal over the conclusion of the arbitrator. It is not open to the court to set aside a finding of fact arrived at by the arbitrator and only grounds on which the award can be set aside are those mentioned in the Act. Where the arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for interference by the court in the exercise of the power vested in it.
6.3. In the case of Associate Builders v/s Delhi Development Authority, (2015) 3 SCC 49, it was held that interference with an arbitral award is permissible only when the findings of the OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 12 of 29 arbitrator are arbitrary, capricious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
6.4. In Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India Ltd. 2019 SCC OnLine SC 677, the Hon'ble Supreme Court has held that under Section 34 of the Act, a decision which is perverse while no longer being a ground for challenge under public policy of India but would certainly amount to a patent illegality appearing on the face of the award. A finding based on the documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties and therefore would also have to be characterized as perverse.
6.5. In the case of Patel Engineering Ltd Vs. North Eastern Electric Power Corp Ltd, 2020 (7) SCC 167, it was observed that in paragraphs (39) & (40) of Ssangyong Engineering (supra), the Court reiterated paragraphs (42.2) & (42.3) of Associate Builders (supra), wherein, it was held that construction of the terms of a contract is primarily for Arbitrator to decide, unless the Arbitrator OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 13 of 29 construes a contract in a manner, which no fair minded or reasonable person would take i.e. if a view taken by the arbitrator is not even a possible view to take. It was held that the ground of patent illegality is a ground available under the statute for setting aside a domestic award, if the decision of the arbitrator is found to be perverse or so irrational that no reasonable person would have arrived at the same; or the construction of the contract is such that no fair or reasonable person would take or that the view of the arbitrator is not even a possible view.
6.6. In case of Dyna Technologies Pvt. Ltd. Vs. Crompton Greaves Ltd., CIVIL APPEAL NO. 2153 OF 2010, decided on 18.12.2019, the Hon'ble Apex Court observed that Courts are required to be careful while distinguishing between ineducacy of reasons in an award and unintelligible awards and observed in para no. 29, 33, 34, and 35 as under:-
29. There is no gainsaying that arbitration proceedings are not per se comparable to judicial proceedings before the Court. A party under Indian Arbitration Law can opt for an arbitration before any person, even those who do not have prior legal experience as well. In this regard, we need to understand that the intention of the legislature to provide for a default rule, should be given rational meaning in light of commercial wisdom inherent in the choice of arbitration.
33. It may be relevant to note Russell on Arbitration, 23rd edn.
(2007), wherein he notes that:
"If the Court can deduce from the award and the materials before it, which may include extracts from evidence and the transcript of hearing, the thrust of the tribunal's reasoning then no irregularity OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 14 of 29 will be found....Equally, the court should bear in mind that when considering awards produced by non lawyer arbitrators, the court should look at the substance of such findings, rather than their form, and that one should approch a reading of the award in a fair, and not in an unduly literal way." (emphasis supplied)
34. The mandate under Section 31(3) of the Arbitration Act is to have reasoning which is intelligible and adequate and, which can in appropriate cases be even implied by the Courts from a fair reading of the award and documents referred to thereunder, if the need be. The aforesaid provision does not require an elaborate judgment to be passed by the arbitrators having regards to the speedy resolution of dispute.
35. When we consider the requirement of a reasoned order three characteristics of a reasoned order can be fathomed. They are:
proper, intelligible and adequate. If the reasoning in the order are improper, they reveal a flaw in the decision making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged strictly on the grounds provided under Section 34 of the Arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent of providing no reasons at all. Coming to the last aspect concerning the challenge on adequacy of reasons, the Court while exercising jurisdiction under Section 34 has to adjudicate the validity of such an award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration. The degree of particularity cannot be stated in a precise manner as the same would depend on the complexity of the issue. Even if the Court comes to a conclusion that there were gaps in the reasoning for the conclusions reached by the Tribunal, the Court needs to have regard to the documents submitted by the parties and the contentions raised before the Tribunal so that awards with inadequate reasons are not set aside in casual and cavalier manner. On the other hand, ordinarily unintelligible awards are to be set aside, subject to party autonomy to do away with the reasoned award. Therefore, the courts are required to be careful while distinguishing between inadequacy of reasons in an award and unintelligible awards.
OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 15 of 29 6.7. Before proceeding further, it would appropriate to also analyze various aspects regarding Blacklisting of the suppliers and the procedure mandated to be followed.
6.8. Hon'ble Supreme Court in Erusian Equipment & Chemicals Ltd. v. State of W.B. (1975) SCC 70, wherein the Hon'ble Supreme Court observed that the order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. A person who is on the approved list is unable to enter into advantageous relations with the Government because of the order of blacklisting. A person who has been dealing with the Government in the matter of sale and purchase of materials has a legitimate interest or expectation. Blacklisting has the effect of preventing a person from the privilege and advantage of entering lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist.
6.9. Another judgment given by the Hon'ble Supreme Court titled Patel Engineering Limited vs. Union of India (UOI) and Ors. (2012) 11 SCC 257, after considering the judgment in Erusian Equipment, observed the following:
OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 16 of 29 "15. It follows from the above judgment in Erusian Equipment case [(1975) 1 SCC 70] that the decision of the State or its instrumentalities not to deal with certain persons or class of persons on account of the undesirability of entering into the contractual relationship with such persons is called blacklisting. The State can decline to enter into a contractual relationship with a person or a class of persons for a legitimate purpose. The authority of the State to blacklist a person is a necessary concomitant to the executive power of the State to carry on the trade or the business and making of contracts for any purpose, etc. There need not be any statutory grant of such power. The only legal limitation upon the exercise of such an authority is that the State is to act fairly and rationally without in any way being arbitrary--thereby such a decision can be taken for some legitimate purpose. What is the legitimate purpose that is sought to be achieved by the State in a given case can vary depending upon various factors."
6.10. In the case of Kulja Industries Ltd vs. Chief Gen. Manager W.T. Proj. Bsnl and Ors., reported in (2014) 14 SCC 731 Hon'ble Apex Court laid down the proposition of observing the principles of natural justice before blacklisting and further held therein that blacklisting in absence of observing the principles of natural justice will be said to be invalid. It has been held in the said judgment that every action of the State Executive Authority must be subject to rule of law and must be informed by reasons.
6.11. In Gorkha Security Services vs. Government (NCT of Delhi) 2014 SCC OnLine SC 599 the Hon'ble Supreme Court had observed as under:
OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 17 of 29 "With blacklisting many civil and/or evil consequences follow. It is described as "civil death" of a person who is foisted with the order of blacklisting. Such an order is stigmatic in nature and debars such a person from participating in government tenders which means precluding him from the award of government contracts."
6.12. In Medipol Pharmaceutical India Private Limited vs. Post Graduate Institute of Medical Education and Research and Another (2021) 11 SCC 339, the Hon'ble Apex Court observed that the blacklisting has the effect of preventing a person from the privilege of entering into a lawful relationship with the Government for the purpose of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist. It was thus concluded that the only legal limitation upon the exercise of such an authority by the State is to act fairly and rationally without being arbitrary in any way.
6.13. Even in the latest judgment passed on this issue in the matter captioned as 'UMC Technologies Private Limited vs. Food Corporation of India and Ors. (2021) 2 SCC 551, the Hon'ble Supreme Court held the following:
"19. In light of the above decisions, it is clear that a prior show-cause notice granting a reasonable opportunity of being heard is an essential element of all administrative decision-making and particularly so in decisions pertaining to OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 18 of 29 blacklisting which entail grave consequences for the entity being blacklisted. In these cases, furnishing of a valid show-
cause notice is critical and a failure to do so would be fatal to any order of blacklisting pursuant thereto."
"21. Thus, from the above discussion, a clear legal position emerges that for a show-cause notice to constitute the valid basis of a blacklisting order, such notice must spell out clearly, or its contents be such that it can be clearly inferred therefrom, that there is intention on the part of the issuer of the notice to blacklist the noticee. Such a clear notice is essential for ensuring that the person against whom the penalty of blacklisting is intended to be imposed, has an adequate, informed and meaningful opportunity to show cause against his possible blacklisting."
7. I have carefully perused the facts of the case and suitably guided by the pronouncements discussed above. There is no quarrel on the legal position that the legislative mandate clearly bars the Court to re-appreciate the evidence for deciding an objection under Section 34 of the Act. However, in order to see whether the Ld. Arbitrator has passed the impugned award against the basis notions of justice or it is patently illegal as alleged by the petitioner, I deem it appropriate to consider the real controversy between the parties, which gave rise to the cause of action for filing of the claims and the manner in which they were appreciated by the Ld. Arbitrator in reference to the terms & conditions of the Tender Documents.
8. It emerges from the record that the adverse action against the petitioner kick-started on a complaint which resulted in sending of OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 19 of 29 samples of three Batches of Drugs for testing. The petitioner has raised serious discrepancies about the veracity of the testing reports. The first and foremost is that in the complaint dated 04.10.2016, the relevant Drug Store has claimed to send samples from Batch of Drug AZT15007 and AZT16002 but the official noting (on Note-sheet) dated 04.10.2016 through which decision for testing of the samples was approved by the competent authority show the following:-
S. Name Item Item Batch Encoded Manufa Observat Approved Appr Qty.
No of the code Name Numb Batch cturer ions Lab oved
. hospita er Number rates
l Rs.
1. CDMO 13180 Tablet AZT CPA/CO Vivek Tablets Shree 1000 60
South 22 Azithro M/Oct16 Pharma are too Krishna
mycine 15007 /1 chem friable. Analytical
500 mg India It is not services
Limtied possible
to take
2. CDMO 13180 Tablet AZT CPA/CO Vivek Shree 1000 60
out
South 22 Azithro M/Oct16 Pharma Krishna
intact
mycine 15008 /1 chem Analytical
tablet
500 mg India services
from
Limtied
blister
pack.
Broken
tablets
also
demonst
rate the
self
disintegr
OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi
Page 20 of 29
ation
and
defective
coating.
9. Perusal of impugned award shows that Ld. Arbitrator did not discuss or provide any explanation from the respondent as to how (from where) the samples of Batch AZT15008 were obtained which was allegedly sent to testing Laboratory along with Batch AZT15007. There is no explanation to the fact that if the sample from Batch AZT16002 were received on 04.10.2016 along with the said complaint then why this batch was not sent for testing on the same date i.e. 04.10.2016 and it was kept till 27.02.2017.
10. Another point upon which has been casually brushed aside by the Ld. Arbitrator is that two separate Laboratory Testing Reports dated 10.10.2016 in respect of Batch AZT15007 and AZT15008 clearly mentions that the samples were received on 04.08.2016. In the impugned Arbitral Award, Ld. Arbitrator while discussing at Page 18, merely mentioned that this was a typographical error. The petitioner herein has seriously contested this aspect and it was incumbent upon the respondent to establish that inaccurate date has been mentioned by the Laboratory. It will not be out of place to mention here that during Arbitral proceedings the respondent on 07.12.2019 along with evidence by way of affidavit of respondent submitted List of Witness including the OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 21 of 29 Authorized Representative of M/s Shree Krishna Analytical Services Laboratory Delhi but this witness was not examined. The contention of the respondent that because these laboratory reports correctly mention the codes numbers given to these Batches is not sufficient to dispel the apprehensions of the petitioner because the entire record of sending Batches for Testing was in possession of the respondent only. There is nothing on record to show that the samples of Drugs from these batches were taken either in the presence of the petitioner or any independent person. No procedure of taking samples and ensuring its credibility has been brought on record during the Arbitration proceedings. It transpires from record that the Ld. Arbitrator has not discussed about the contentions of the petitioner raised therein and in such circumstances, in absence of such evidence, it is fallacious to assume that the date of receipt of samples in the Laboratory is a typographic error particularly when the petitioner is alleging malafide. Even otherwise, the samples of drugs were being drawn for the purposes of checking Quality of Drugs which is governed by the Drugs and Cosmetic Act which provides very precise procedure to be adopted for collecting samples. It may be argued that in the present case, the samples were being drawn for the purposes of commercial dispute emerging from the Tender / contract yet at least some credible procedure must be followed which will lead credibility to the sample drawing. It was incumbent upon the respondent to dispel the typographic errors of dates of receipt of sample on the reports, so the findings given by the Ld. Arbitrator that the date 04.08.2016 OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 22 of 29 in the column of receiving the sample is nothing but a typographical error is liable to be set aside on this count.
11. Adverting to the next contention of the petitioner that the Ld. Arbitrator ignored the fact that no explanation has been given by the respondent as to why the sample of batch AZT16002 was allegedly sent only after 08.02.2017. It is evident from impugned arbitral award that the issue as to whose custody these samples remained and whether it was kept under the conditions which did not physically harm the medicine is silent despite objection raised by the petitioner. Hon'ble Apex Court considered the effect of delay in sending the samples in the case of Medipol Pharmaceutical India Private Limited vs. Post Graduate Institute of Medical Education and Research and Another (2021) 11 SCC 339, in paragraph 12 of the judgment the following was observed:
12) Though the aforesaid judgments pertain to criminal prosecutions under the Drugs and Cosmetics Act, Prevention of Food Adulteration Act and Insecticides Act, yet, they lay down that a valuable right is granted to a person who is sought to be penalized under these Acts to have a sample tested by the Government Analyst that is found against such person, to be tested by a superior or appellate authority, namely, the Central Drugs Laboratory. These judgments lay down that if owing to delay which is predominantly attributable to the State or any of its entities, owing to which an article which deteriorates with time is tested as not containing the requisite standard, any prosecution or penalty inflictable by virtue of such sample being tested, cannot then be sustained. We have seen that on the facts of this case, the sample drawn and analyzed by the Government Analyst was delayed for a considerable period resulting in the sample being drawn towards the end of its shelf life. Even insofar as the samples sent to the Central Drugs Laboratory, there was a considerable delay which resulted in the OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 23 of 29 sample being sent and tested 8 months beyond the shelf life of the product in this case. It is thus clear that the valuable right granted by Section 25 of the Drugs and Cosmetics Act kicks in on the facts of this case, which would necessarily render any penalty based upon the said analysis of the sample as void.
12. The above observation leaves no doubt that the samples drawn are to be sent immediately without any delay. In the instant case, a perusal of the impugned arbitral award reveals that the delay has not been considered by the Ld. Arbitrator and the award is silent on this aspect.
13. Coming to the next contention of the petitioner that Ld. Arbitrator failed to take note of the fact that the report relied upon by the respondent was under Clause 1.2.1 (e) and the decision of such report by an analytical laboratory was not final and was subject to retest by a Government Laboratory under the Clause 1.2.1 (e), which were mandatory and alone was to be treated as conclusive and only on the basis of test report of the Government laboratory, could the decision follow as envisaged under Clause 1.2.1 (1) and (ii) and (iii). On the contrary, it was stand of the respondent that testing of the drug at Government laboratory by the Drug Controller as per Clause 1.2.1 (e) of the Tender Condition is merely a safeguard against the adverse testing report by the empaneled laboratory. In other words, testing reports from the empaneled laboratory declaring the drug 'not of standard quality' shall be treated as final unless and until favourable testing report is OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 24 of 29 obtained from Government laboratory in terms of Clause 1.2.1 (e) (4) of the Tender Conditions. Therefore, in case, Drug Controller ignores the testing from Government laboratory, the decision based on testing report of empaneled laboratory shall prevail under the tender conditions. It is evident from arbitral record that the Ld. Arbitrator after referring to the clauses of Terms and Conditions of Tender Agreement and taking note of respective submissions of the parties did not accept the argument of the petitioner observing that it was not mandatory for the respondent under the agreement to obtain the Government lab report for blacklisting procedure.
14. In the present case, it is admitted position that the terms and condition of supply is governed by the Tender document Reference: 1501.1 being E-tender for the supply of Drugs and Medicines by Department of Health and Family Welfare, Government of NCT of Delhi for the year 2015-16. The relevant Clause 1.2 provides procedure for Blacklisting for Quality Failure and further 1.2.1 is the clause for testing by Empaneled Laboratories which is extracted as under :-
1.2.1. Quality Test by the Empaneled Laboratories of CPA/DHS
(a) Each and every batch of drugs/medicines supplied by the supplier shall be subjected to quality test by the Empanelled laboratories.
(b) The samples are collected from the hospitals from each batch of supply of the same drugs and after eliminating the common batch, samples shall be taken in random, decoded and will be sent to the empanelled testing laboratories for testing the OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 25 of 29 quality of drugs.
(c) If such sample passes quality test in all respects, CPA/DHS will instruct its hospitals to issue such items of drugs.
(d) Such quality passed batches if received after declaration of result of the earlier supply, the same will be again subjected to testing and the latest report of that particular batch will prevails upon the earlier results and binding on the entire quantity of the batch supplied and recovery will be made for the entire quantity of that batch irrespective of purchase order date or date of supply etc.
(e) If the sample fails in quality test and report is received certifying that sample is "NOT OF STANDARD QUALITY", one more sample shall be drawn from the same batch and to be sent to Government Laboratory for quality testing.
(i) If such sample passes the quality test as per the report of Government Laboratory, the drugs representing the sample shall be qualified for issue.
(ii) If such sample fails in the quality test, as per the report of the Government Laboratory, the drugs of the batch are not qualified for issue and the supplier shall take back the drugs supplied in that batch, besides taking other actions as per the Tender conditions by CPA/DHS.
(iii) If such Sample fails in quality test for ASSAY content of less than 50% as per the Government Analyst report, such product of the bidder will be blacklisted for two years.
(iv) However, CPA/DHS reserves the right to reject the drugs based on reports from empanelled laboratories with the applicable penal provisions.
(f) If 3 batches of a particular item supplied by the supplier is reported to be failing in ASSAY content (above 50% but below prescribed limit) and/or other parameters, then the particular item of the firm shall be blacklisted after observing procedure laid down in Para 1.2.4 besides forfeiture of Security Deposit of that particular product(s).
(g) In all the cases the reports received from the Government Drug Testing Laboratory/decision of CPA/DHS will OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 26 of 29 be conclusive and final and binding on the suppliers.
15. It may be seen from the above that as per Tender document, a stepwise procedure has been provided which has to be adopted by CPA/DHS. The above clearly shows that if the sample fails during testing in empaneled laboratory as provided under (a) to (d) then it would be imperative to resort to (e). The samples of the petitioner should have been sent to Government Laboratory. Even otherwise, clause 1.2.1 (g) of Tender Document merely states that in all cases, the reports received from the Government Drug Testing Laboratory/decision of CPA/DHS will be conclusive and final and binding on the suppliers. It does not confer discretion on CPA/DHS to pick and choose to refer cases for testing to Government Laboratory particularly when the authority intends to take decision of Blacklisting a supplier. Even sub-clause (iv) of 1.2.1(e) merely provides that CPA/DHS reserves the right to reject the drugs based on reports from empaneled laboratories with the applicable penal provisions. Perusal of record shows that the Ld. Arbitrator has not given clear finding to the argument raised by the petitioner that testing through Government Laboratory was obligation of the Drug Controller of GNCTD in the light of Clause 1.2 of the Tender document dealing with Blacklisting for Quality Failure has sub- limbs such as 1.2.1 Quality Test by the Empaneled Laboratories of CPA/DHS, 1.2.2 Quality Test by Statutory Authorities, 1.2.3 Blacklisting of the supplier for quality failure and 1.2.4 procedure for blacklisting. Further, the Limb 1.2.2 provides separate OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 27 of 29 provision for the statutory authorities like Drug Controller to make complaint about sub-standard drugs. In the instant case, the action was initiated by CPA/DHS, thus it was upon respondent to facilitate testing of the drug by a Government Laboratory as has been envisaged in clause 1.2.1(e). A perusal of the award shows that no reasoned findings have been given in the impugned award.
16. Further, denying the copies of test report to the petitioner has also been strongly argued by the petitioner as non-observance of principles of natural justice. The petitioner has mentioned series of communications/ letters sent to the respondent for providing copies of the laboratory test reports but it was not provided. The respondent has neither given any explanation for not providing the copies of test reports nor denied the receipt of communications from the claimant. This point was raised by the petitioner before the Arbitral Tribunal, but the impugned award is silent on this issue. As an integral part of principles of natural justice, it is mandated upon the authorities to provide complete set of adverse material/Documents which are likely to be relied upon before passing any adverse order. Non-observance of such requirement will vitiate the entire process. The right to fair hearing is a guaranteed right. Every person before an authority exercising the adjudicatory powers has a right to know the evidence to be used against him. This principle is firmly established and recognized by the Hon'ble Court in Dhakeswari Cotton Mills Ltd. v. CIT [AIR 1955 SC 65 : (1955) 1 SCR 941].Further, in Managing Director, OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 28 of 29 ECIL, Hyderabad & Ors. V. B. Karunakar & Ors., (1993) 4 SCC 727, it was held that adverse/ enquiry report must be shared and in case of not sharing the aggrieved must show the prejudice caused. In the instant case, the impugned award has not given any reasoning about the justification of respondents in not providing copies of Laboratory Test reports which were relied upon. The Ld. Arbitrator has not discussed or adjudicated upon these aspects and in my considered view, the findings of the Ld. Arbitator is basically upon no reasoning and non application of judicial mind.
17. In view of above discussions, in considered opinion of this court, the impugned award is against the violation of principles of natural justice, fundamental policy of India and shocks the judicial conscience. Furthermore, the same appears to be patently illegal. Accordingly, in view of the discussions, as adumbrated above, the petition under Section 34 of the Arbitration and Conciliation Act is hereby allowed. The impugned award dated 25.02.2020 is hereby set aside. Parties are left to bear their own costs.
18. File be consigned to record room.
Pronounced in the open (VINEETA GOYAL) Court on 31st May, 2023 District Judge (Commercial)-03 Patiala House Courts New Delhi OMP (Comm)-124/21 Vivek Pharmachem India Ltd v/s Govt of NCT of Delhi Page 29 of 29