Pure Pharma Ltd. vs Union of India

S. Ravindra Bhat, J.—The petitioner is aggrieved by the decision dated 21.3.2006 communicated by the respondent, Central Government, which decided to suspend business with it (the petitioner) pending full enquiry into the allegations against it. The writ petitioner had earlier moved this court by filing CWP No. 12323/2005 complaining that the Central Government had suspended business with it, without affording reasonable opportunity or observing any principles of natural justice. By order dated 4.8.2005 the earlier decision dated 26.6.2005 was quashed; the Central Government was directed to afford opportunity before making any adverse order. After the decision of this court in the previous writ proceedings, the Central government issued a show cause notice to the petitioner on 18.8.2005. This show cause notice concerned allegations of supply of 35.8 million units of pharmaceutical products for use in a World Bank assisted Reproductive and Child Health Care Project in the State of Tamil Nadu. The procuring agency, was Tamil Nadu Medical Services Corporation Limited. The supplies were to be made sometime in the year 2001; the tenders were apparently furnished on 15.10.2001. It was alleged that the petitioner concern and a competitor M/s Nestor Pharmaceuticals had quoted an identical rate namely Rs. 9.84 per 100 tablets.

The Tamil Nadu Medical Services Corporation Limited had allegedly submitted an internal report to the international lender, i.e. the World Bank, on the basis of its observations, indicating that though the rival tenderers had quoted similar rates, during post tender negotiations they both agreed to supply the product at Rs. 6.09 per 100 units. The show cause notice of the Central Government was apparently premised on the internal report. It also alleged that the petitioner had indulged in forgery and fabrication of certain documents i.e. certificates furnished by public authorities in the State of Madhya Pradesh.

The petitioner denied the allegations by its reply dated 30.8.2005. The impugned order was thereafter issued by the Central Government. During the course of the present proceedings, the Central Government abandoned the second allegation. It admitted that there was no basis in the allegations of forgery/fabrication of documents. This is apparent from its averment in para 12 of the counter affidavit; the same reads as follows:-

That in reply to the averments/allegations made in the instant para, it is submitted that the genuineness of the certificates issued by the State Drug Administration at Bhopal and Indore has been ascertained from the said authority and it has been verified that the same were in fact issued by them. Therefore the Respondents have no grievance qua the performance certificates issued by the State Drug Administration (M.P.).

During the proceedings this court had directed the respondent to afford personal hearing to the petitioner. It was submitted that such personal hearing was given by the Chief Vigilance Officer. Learned counsel relied upon the contents of the order/decision which recommended that the period of suspension of dealings with the petitioner should be extended by six months. The relevant part of that order, dated 2-6-2006, reads as follows:-

I have carefully heard the submissions made by the respondents and have carefully examined their written arguments. The representatives of the firm had tried to establish that in each of the case the rates quoted by them were close to the rates quoted by M/s Nestor Pharmaceuticals were mere coincidences and that there was no collusive action on their part. However, personal of the following facts reveals a pattern of sorts:

i. In the tender for procurement of IFA Tablets (large) invited by TNMSC in the year 2001-02, M/s Pure Pharma and M/s Nestor Pharmaceuticals quoted the same price of Rs. 9.84 per 100 tablets. Both the firms quoted a lower price for the supply of same drug in the tender invited by TNMSC in the same year i.e. Rs. 8.84 per 100 tablets by M/s Pure Pharma and Rs. 8.74 by M/s Nestor. Subsequently, both the firms agreed to make the supplies at a price of Rs. 6.09 per 100 tablets. Neither firm tried to outbid the other obviously with the intention of sharing the quantity put to tender.

ii. In the tender for procurement of concentrated Vitamin A solution, the unit prices between the lowest and the highest bidders varied as much as Rs. 132.52. However, the variation between the unit prices quoted by M/s Pure Pharma and M/s Nestor was only Rs. 0.40 with the rates of M/s Pure Pharma being marginally lower than those being quoted by M/s Nestor.

iii. In the tenders for kitting contracts invited by HLL in the year 2001 and 2002 in the form of different schedules, both the firms quoted in such a manner that if M/s Pure Pharma quoted for one schedule, then M/s Nestor would not quote for that schedule. Again, in the tender for supply of drugs invited by HLL in the year 2001, the rates quoted by M/s Nestor in all the 16 schedules out of the 56 schedules where M/s Pure Pharma had quoted. This proved a nexus between the two firms.

iv. Just to quote few instances, in the tender for procurement of drugs under Kit A invited by HSCC in the year 2000, the unit prices for ORS between the highest and the lowest bidder varied as much as Rs. 25.90 while the difference between the unit prices quoted by M/s Pure Pharma and M/s Nestor was only Rs. 0.03 and the rate quoted by M/s Pure Pharma was lower. In the same tender, the unit prices for Cotrimoxazole tablets quoted by the two firms varied by only Rs. 3.29 against the variation of Rs. 28.00 between the highest and the lowest bidders. The rate of M/s Pure Pharma was again lower. Similarly, in the same tender the unit prices for concentrated vitamin A solution quoted by the two firms showed a variation of only Rs. 0.39 against the variation of Rs. 183.50 between the highest and the lowest bidders. Here also, the rates quoted by M/s Pure Pharma are lower to those quoted by M/s Nestor. Thus, the rates quoted by M/s Pure Pharma were consistently lower than the rate quoted by M/s Nestor in all the schedules where the former had quoted. I would be inclined to accept the argument of this being a coincidence if this had happened only in one or two cases. However, this pattern has is mark on all the bids discussed above and is, therefore, more than a coincidence. The fact that M/s Pure Pharma has all along succeeded in quoting a marginally lower rate than M/s Nestor points to a tacit understanding between the two firms that while M/s Pure Pharma would not bid for all schedules, it would be able to quote the lowest rate in whichever schedule it quoted. Thus, it became a win-win situation for both parties.

It is thus evident that above instances are not mere coincidences and there is a definite pattern emerging over the period 1999-2002. It would be inappropriate to treat each of the issue separately and in isolation. The matter has to be viewed in a holistic way. I would, therefore, find it reasonable to conclude that there is strong evidence of nexus between M/s Pure Pharma and M/s Nestor Pharmaceuticals in quoting coordinated bids against the tenders for supply of drugs under RCH project to win majority of the contracts.

Regarding the claim of M/s Pure Pharma that the Ministry''s action of suspending the business with them is premature as the matter is being still investigated by Department of INT of World Bank and its report is yet to be submitted, it is pertinent to point out that the Ministry has received a communication dated 30th May 2006 from World Bank confirming that they have issued a notice of debarment proceedings to M/s Pure Pharma on 26th May, 2006 in accordance with the Bank''s sanctions procedures. World Bank''s debarment proceedings are likely to be concluded in the next 5-6 months. It needs to be emphasized that this Ministry undertakes action on its own without awaiting the results of the proposed sanction proceedings by the World Bank.

I, however, do take cognizance of the fact that the World Bank has initiated debarment proceedings against the respondents viz. M/s Pure Pharma. Punitive action against the firm by the Ministry and by the World Bank on the same issues might end up in a situation where the respondents might become liable twice for the same offence. Therefore, in my considered view, all business dealings with M/s Pure Pharma stand suspended for a period of six months from the date of issue of this order i.e. 02.06.2006. The position shall be reviewed after the expiry of this period for further appropriate action. If, in the meanwhile, the respondents are exonerated by the World Bank, they may apply for appropriate relief from this Ministry also. "A copy of the order be forwarded to M/s Pure Pharma Ltd. as their given address."

Counsel contended that during the proceedings a fresh show cause notice was issued on 19.5.2006 making further allegations in regard to other procurements and not confined to the transactions complained of in Tamil Nadu during 2001. Counsel contended that the petitioner replied to the said show cause notice on 29.5.2006; the order of 2.6.2006, quoted above, considered the reply. In these circumstances the indefiniteness and uncertainty of facing suspension orders should be avoided. Counsel contended that the petitioner has already suffered for more than one year on this score. It was contended that the decision to keep the suspension business with the petitioner has to be quashed. It was contended that the Central Government acted under dictates of an agency which is not accountable to the court''s process. It was contended that the petitioner cannot be left in the lurch and kept in suspense, as it were indefinitely. This is both unreasonable and arbitrary. Without a final adverse finding, the suspension itself acts as a penal order, stifling the right of the petitioner to carry on business.

It was contended on behalf of the respondent that an order was made yet again on 2.12.2006 whereby the Government has decided to continue with its decision to suspend business for a similar period of six months. It was contended that the decision of the respondent cannot be characterized as arbitrary; it was guided by relevant considerations. The World Bank conducted its inquiry. Although the Central Government had sufficient materials to decide, and in fact did so, it fairly formed the opinion that suspension of business with the petitioner was the best course of action, since the World Bank''s recommendations, when made finally, could, if adverse, act as an double penalty.

From the above narrative it is evident that initially the allegations against the petitioner concerned its objectionable behaviour in teaming up with its rival M/s Nestor Pharmaceuticals. As to why these allegations surfaced more than 3 years after the alleged offer, is unclear. In any event in its role as a public agency the respondent thought it appropriate to issue the impugned order suspending business. That order to my mind could not have been sustained in its terms since it did not indicate a terminus quo or a fixed period. In any event, subsequent to the first order, a second show cause notice containing other allegations was issued. Here too the petitioner replied, denying the allegations. The tenor of the two orders dated 2.6.2006 and 2.12.2006 are that even though the Central Government was in a position to make its final decision, it wanted to await instructions from the international lending agency i.e. the World Bank.

I am of the opinion that the approach of the respondent is unsatisfactory; it borders the arbitrary. While its role as a guardian of public monies and duties imposed upon it under the Constitution to ensure that the best material are procured at the most suitable rates, are undeniable, equally it is accountable to the Constitution and the rule of law. One salutary principle of public law is that no authority empowered to take a decision, in exercise of discretion can be dictated by someone who is not empowered to do so. This was explained by the Supreme Court in Indian Railway Construction Co. Ltd. Vs. Ajay Kumar, as follows:

These several principles can conveniently be grouped in two main categories: (i) failure to exercise a discretion, and (ii) excess or abuse of discretionary power. The two classes are not, however, mutually exclusive. Thus, discretion may be improperly fettered because irrelevant considerations have been taken into account, and where an authority hands over its discretion to another body it acts ultra vires.

Again, in State of N.C.T. of Delhi and Another Vs. Sanjeev @ Bittoo, the Court reiterated the view in more explicit terms, as follows:

In general, discretion must be exercised only by the authority to which it is committed. That authority must genuinely address itself to the matter before it; it must not act under the dictates of another body or disable itself from exercising discretion in each individual case.

This principle applies even if the authority is superior in heirarchy; the official entrusted in law to decide alone can do so. The Central Government cannot relieve itself of the responsibility of deciding and depend on the opinion of an outside agency, such as the World Bank which is not accountable to process of law of any country and certainly not the Constitution of India. In these circumstances I have no manner of doubt that the Central Government misunderstood its role in such cases. Though it may choose to obtain funds from international body, it is bound by principles such as rule of law, non-arbitrariness and reasonableness. This would mean that it has to apply the same standards as it does in similar cases, when dealing with individual concerns or an Indian company when entering into contracts with itself or disposing of its property. If the Government is viewing the present transaction whereby it secures loans from international agencies on a different footing by application of differing yardsticks, it would be contravening Article 14. It is bound to treat all alike uniformly, applying the same standards and yardsticks, as assured by the Constitution; it cannot impose another set of rules merely because the contract is part of a project funded by an international lender or donor. Thus, it has to decide whether to suspend business with the petitioner, independently, by application of mind to relevant factors, without feeling compelled or bound by the decisions of others; if the material placed by such bodies happens to be relevant, it can be taken into consideration, after putting the concerned party likely to be "affected by it, to notice about such report or materials.

In view of the above conclusions the respondent Central Government is hereby directed to conclude the proceedings and pass a final order in accordance with its procedures after taking into consideration such materials as are relevant in the circumstances. It is made clear that the Central Government shall not consider the recommendations of the World Bank as binding upon it, it can be taken into account as an element of the decision making process. The Central Government shall also consider the impact of its decision upon the petitioner, having regard to the suspension of business orders suffered by it for more than one year as well as the proportionality principle, in case it decides to make any adverse orders. The entire exercise shall be completed within two months from today; the Government shall pass a reasoned speaking order and communicate the same directly to the petitioner. The writ petitions and all pending applications are disposed off in the above terms. No costs. Order dasti.