Pending Probe Into Pharma Firm's COVID Sanitizer Supply Can't Justify Withholding Payment For Undisputed Drug Supplies: Karnataka High Court
The Karnataka High Court recently directed the State Medical Supplies Corporation Limited (KSMSCL) to release a part payment of Rs 1.5 crore to a pharmaceutical firm for drugs supplied during the COVID-19 pandemic, while keeping the balance payment subject to the outcome of an inquiry into alleged irregularities in procurement. [2026 LiveLaw (Kar) 271]A single judge bench of Justice M.G.S....
The Karnataka High Court recently directed the State Medical Supplies Corporation Limited (KSMSCL) to release a part payment of Rs 1.5 crore to a pharmaceutical firm for drugs supplied during the COVID-19 pandemic, while keeping the balance payment subject to the outcome of an inquiry into alleged irregularities in procurement. [2026 LiveLaw (Kar) 271]
A single judge bench of Justice M.G.S. Kamal disposed of the petition filed by Sujal Pharma, seeking a direction to consider the representation made by the firm to KSMSCL and for the respondent authorities to pay Rs 3.14 crores along with 18% interest. The payment was in relation to drugs supplied against purchase orders issued in 2021.
“…Respondent-authorities shall release a sum of Rs.1,50,00,000/- being part payment of the amount towards the purchase orders dated 01.05.2021, 14.05.2021, 20.05.2021 and 06.07.2021 as per Annexure-C series within 15 days from the date of receipt of certified copy of this order…The affidavit and the copy of the title document of the property as noted above filed by the proprietary of the petitioner is taken on record. The same shall constitute a security/guarantee against the part payment to be made by the respondent-authorities towards the purchase orders dated 01.05.2021, 14.05.2021, 20.05.2021 and 06.07.2021 as per Annexure-C series”, the court concluded in the order.
The petitioner firm from Bengaluru was issued purchase orders on May 1, 2021, May 14, 2021, May 20, 2021, and July 6, 2021, for supply of drugs by KSMSCL. The firm alleges that it has supplied drugs to the tune of Rs 3.14 crores and raised invoices accordingly. Be that as it may, the respondent authority sent an email in April 2022 saying that the invoice in one purchase order to the tune of Rs 2.94 crores would not be released. The reason cited by the authority was that the drugs supplied earlier from 2020 were of substandard quality. This, along with the expired drugs and statutory deductions ought to be adjusted against, the authority allegedly told the petitioner.
The authority linked it to the controversies surrounding irregularities in medical procurement during Covid-19. For context, an Enquiry Commission lead by Retd. Justice John Micheal Cunha had submitted a report suggesting recovery proceedings against the petitioner firm for Rs 2.6 crores for supply of defective sanitisers.
The High Court, after hearing both parties, observed that petitioners have undertaken the supply of drugs through four different purchase orders in 2021 about which there is no dispute at all. The court also recorded that the value of the supplies made by the petitioner firm was around Rs 3.14 crores.
The respondent authority was adjusting the value for the supply of allegedly defective sanitisers from March 2020 against the admitted dues from the purchase order from 2021, the court remarked. No formal tender process was adopted for the sanitizer procurement by the authority, the court noted further. The procurement was done without the tender in light of the exemption under Section 4-G of the Karnataka Transparency Public Procurement Act due to Covid 19.
“…. It is not in dispute that there is no defect or deficiency in supply of drugs by the petitioner in terms of the purchase orders dated 01.05.2021, 14.05.2021, 20.05.2021 and 06.07.2021 as per Annexure-C series. There is also no dispute of the fact that petitioner is entitled to the payment of Rs.3,14,82,599/- being the value of the said supply…. Respondent-authorities by the impugned communication dated 29.04.2022 are intending to adjust/set of admitted due towards the alleged defective supply of sanitizers made by the petitioner pursuant to purchase order dated 27.03.2020”, the court set out the facts straight initially.
The petitioner submitted that the firm was willing to furnish security if the respondents were to make the payment, subject to the outcome of the inquiry into the alleged defective supply of sanitizers. According to the petitioner, the value of the sanitisers supplied came around Rs 2.5 crores.
“…The affidavit further reads that the value of the property now offered [by petitioner] as a security would be approximately Rs.1,50,00,000/-. The value of the sanitizers which was supplied by the petitioner subject matter of the enquiry was approximately Rs.2,50,00,000/-. Therefore, the property which is now sought to be offered as security against the payment to be made would cover as a security to the extent of Rs.1,50,00,000/- as against Rs.2,50,00,000/- being claimed by the respondent-authorities…”, the court clarified.
The court, before parting, also mandated that the enquiry about the allegedly defective sanitisers should be concluded within 90 days:
“…The respondent-authorities shall conduct and complete the enquiry with regard to alleged defective supply of sanitizers against the purchase order dated 27.03.2020 within an outer limit of 90 days from the date of receipt of certified copy of this order….If petitioner is found entitled for the amount claimed in respect of the purchase orders at Annexures-C series, balance amount together with interest at the rate of 6% p.a. from the due date till determination of the matter, shall be paid within an outer limit of 90 days from such determination”, the court said.
The respondent-authorities would be at liberty to invoke the security if the petitioner is found liable in the enquiry, the court added.
The Court also made it clear that if the contents of the affidavit or the property offered as security are found to be defective, the petitioner shall be liable to refund the amount with interest and face contempt of court proceedings.
Case Title: M/s Sujal Pharma v. State of Karnataka & Anr.
Case No: WP 12583/2022
Citation: 2026 LiveLaw (Kar) 271
Counsel for Petitioner: Sri. Rajesh Mahale, Senior Advocate (for Sri. Ashwin Kumar H., Advocate)
For State's Health and Family Welfare Department: Sri. Mahantesh Shettar, Additional Government Advocate (AGA)
For Karnataka State Medical Supplies Corporation Limited (KSMSCL) : Smt. Sumana Baliga M., Advocate