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M/S Daffodills Pharmaceuticals Ltd. & Anr. v. State of U.P. & Anr.

Civil Appeal · 2019 INSC 1366Decided 13 Dec 2019
Civil Appeal No. 9417 of 2019
Justice Rohinton Fali Nariman · Justice S. Ravindra Bhat

Background

Daffodills, a pharmaceutical supplier, won a tender to supply medicines to U.P. government hospitals after declaring that no criminal case was pending against the firm or its directors. The State later directed all its hospitals to stop all local purchases from Daffodills indefinitely, after a CBI case was registered against Surender Chaudhary, a man who had already resigned as the company's director back in 2012, in connection with a separate National Rural Health Mission investigation. The Allahabad High Court upheld this directive without requiring the State to first give Daffodills any notice or hearing, reasoning that courts have limited power to review the State's contractual/commercial decisions.

Decision Breakdown

The Supreme Court held that even though the State characterized its order as a mere procurement directive rather than formal "blacklisting," in substance it functioned as an indefinite debarment: arguably harsher than a typical blacklisting order, which usually has a fixed three-to-five-year duration. Citing settled precedent that blacklisting or debarring a contractor is a drastic step that can only be taken after giving the affected party a hearing and an opportunity to represent its case, the Court held that cutting off Daffodills' business indefinitely, based solely on a case against a director who had left the company years earlier, without any notice or hearing, violated this basic principle of natural justice. The Court also held the High Court was wrong to treat its review power as too limited to intervene, since the violation here was not of commercial judgment but of a fundamental procedural safeguard. Rather than merely quashing the order and sending it back for a fresh hearing, which would have meant further delay after the order had already been in effect for over four years, the Court directly quashed the debarment order and the High Court's judgment, allowing the appeal.

Lesson Learnt

Before any government authority bars, blacklists, or cuts off business dealings with a contractor, even informally, without using the word "blacklist", it must first give that party notice and a genuine opportunity to be heard; skipping this step makes the action legally unsustainable regardless of how the order is labelled.

Official source (sci.gov.in)View Judgment (PDF)

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