The Supreme Court has quashed the blacklisting of a pharmaceutical supplier by the Madhya Pradesh government after finding that the authorities failed to follow the mandatory procedure for retesting drug samples before imposing punitive action.

A bench of Justices Vikram Nath, Augustine George Masih and Sandeep Mehta set aside orders blacklisting M/s JPEE Drugs for three years and debarring it from supplying a particular drug for two years after four batches of medicines supplied by the firm were declared Not of Standard Quality (NSQ).

The Court held that the failure to conduct retesting in accordance with the tender conditions, followed by the authorities' failure to comply with the High Court's directions for fresh testing within the stipulated period, deprived the firm of an effective opportunity to challenge the laboratory reports.

"The procedural infirmity, coupled with the irretrievable deprivation of the opportunity for re-testing, renders the orders of blacklisting and debarment unsustainable in law," the Court observed in its October 6 judgment.

The case arose from the supply of Ascorbic Acid (Vitamin C) tablets and Ethambutol Hydrochloride tablets to government hospitals and health centres in Madhya Pradesh by JPEE Drugs, a licensed pharmaceutical firm.

In September 2024, the firm received a show-cause notice after three batches of Vitamin C tablets and one batch of Ethambutol Hydrochloride tablets were declared NSQ in laboratory reports.

The firm denied supplying substandard medicines and contended that the quality failures could have resulted from improper storage and handling after delivery.

On September 30, 2024, the Managing Director of the Madhya Pradesh Public Health Services Corporation Limited (MPPHSCL) passed orders directing recovery of the value of the affected batches, blacklisting the firm for three years in respect of the Vitamin C tablets, and debarring it for two years from supplying the Ethambutol Hydrochloride tablets.

The orders stated that no reply had been received from the firm. A subsequent order dated October 1, 2024, considered and rejected its representation and reiterated the blacklisting and debarment decisions.

Before the Supreme Court, the supplier argued that the authorities had acted without waiting for its reply to the show-cause notice, which had granted seven days to respond. It also relied on Clause 6 of Annexure IX to the tender document, which required a second sample to be drawn from the same batch and sent to another laboratory if the initial test declared the drug to be of substandard quality.

Under the clause, blacklisting could follow only after the second laboratory confirmed the initial result. If the reports contradicted each other, the prescribed procedure provided for a further determination.

The firm contended that the authorities had issued the show-cause notice on the basis of the initial reports without drawing second samples or obtaining confirmation from another laboratory.

The Madhya Pradesh High Court, while dealing with the firm's challenge, had directed that fresh samples be drawn and sent to a Central Government Laboratory for testing within 15 days. However, it declined to immediately quash the blacklisting orders, making their continuation dependent on the outcome of the retesting.

The Supreme Court noted that even when the High Court considered the review petitions in February 2026, the fresh samples had not been drawn and no second laboratory report had been obtained. The retesting exercise remained incomplete even when the Supreme Court stayed the blacklisting orders in May 2026.

The Court further noted that the prescribed 15-day period had remained uncomplied with for over six months. By then, the shelf life of all four affected batches had expired, rendering the proposed retesting ineffective.

Referring to its decision in Medipol Pharmaceutical India Pvt. Ltd. v. Post Graduate Institute of Medical Education & Research, the Court reiterated the importance of preserving an effective opportunity to challenge an adverse drug-testing report through examination by a superior laboratory.

It observed that the principle underlying the safeguards under Sections 25(3) and 25(4) of the Drugs and Cosmetics Act, 1940, was relevant even though the present case concerned administrative and contractual action rather than a criminal prosecution under the Act.

The Court held that the supplier had suffered serious civil consequences on the basis of the laboratory reports, despite the failure to follow the retesting procedure expressly prescribed in the tender document.

The subsequent expiry of the drug batches had irretrievably deprived the firm of an effective opportunity to controvert the reports, the Court said.

Consequently, the Supreme Court quashed the competent authority's orders dated September 30 and October 1, 2024, and set aside the Madhya Pradesh High Court's judgment dated October 27, 2025, and review order dated February 12, 2026, to the extent that they declined to quash the blacklisting and debarment orders.

The appeals were accordingly allowed.