The court rules that extraordinary pandemic circumstances and principles of fairness and proportionality were not considered in the blacklisting decision.
In a significant judgment, the Chhattisgarh High Court has quashed the blacklisting of Cipla Limited by Chhattisgarh Medical Services Corporation Limited (CGMSCL) in relation to a supply contract for Remdesivir injections during the second wave of the COVID-19 pandemic. The court observed that the blacklisting was arbitrary and disproportionate as it failed to consider the extraordinary circumstances during the pandemic and the principles of fairness, proportionality, and judicial review.
Cipla Limited, a leading pharmaceutical company, was blacklisted for three years and had its security deposit forfeited after it was unable to fulfill a substantial order for Remdesivir injections due to sudden escalations in demand. The original tender indicated an approximate requirement of 5,000 vials, but due to the pandemic's second wave, the demand unexpectedly surged to 61,000 vials within days. Cipla contended that the sudden demand was unreasonable and impossible to meet due to raw material shortages, supply chain disruptions, and government allocation directives.
The High Court, presided over by Chief Justice Ramesh Sinha and Justice Ravindra Kumar Agrawal, found that the blacklisting order did not take into account these extraordinary circumstances. The court emphasized that while the government entity had the right to adjust demand, such adjustments must be reasonable and considerate of the prevailing conditions. The judgment highlighted that blacklisting, which severely affects future business prospects, must satisfy fairness and proportionality, especially in times of national crisis.
Citing precedents from the Supreme Court, the court reiterated that the power to blacklist must be exercised with caution and fairness, considering the impact on the supplier's future business opportunities. The decision also underscored the need for proportionality in administrative actions, noting that less severe measures could have been considered given the context and Cipla's partial fulfillment of the order.
The High Court has directed CGMSCL to refund the forfeited security deposit to Cipla and has set aside the blacklisting order. This judgment reinforces the importance of fair administrative practices and the need to consider extraordinary circumstances in contractual obligations during emergencies.
Bottom line:-
Blacklisting by a State instrumentality must satisfy the principles of fairness, proportionality, and judicial review; extraordinary circumstances such as the second wave of COVID-19 and practical constraints faced by the supplier must be considered before imposing penal consequences like blacklisting.
Statutory provision(s): Indian Contract Act, 1872 Sections 16, 23, 56
