Karnataka High Court Orders Partial Payment to Pharma Firm Pending Inquiry for Pandemic Supplies

The High Court of Karnataka has intervened in a protracted payment dispute between M/S Sujal Pharma and the state government, emphasizing the necessity of balancing administrative scrutiny with the rights of suppliers. Presiding over the matter, Hon'ble Mr. Justice M.G.S. Kamal ordered the Karnataka State Medical Supplies Corporation Limited (KSMSCL) to release ₹1.5 crore to the petitioner, balancing the relief against security provided by the firm.

The Dispute Over Unpaid Invoices

The litigation arose when M/S Sujal Pharma sought payment for undisputed drug supplies valued at over ₹3.14 crore. While the respondent authorities did not contest the quality or quantity of these specific supplies, they had withheld payment, attempting to set off the amount against alleged defective sanitizers supplied by the petitioner in an earlier 2020 contract. The state argued that the payment must remain suspended pending the outcome of a larger probe into COVID-19 procurement irregularities conducted by a commission led by Justice John Michael Cunha (Retired).

Arguments and The Security Compromise

The petitioner, represented by their proprietor Mr. Vijay Kumar P Bhojani, contested the withholding of funds as "arbitrary and illegal," arguing that there was no mutual agreement allowing the adjustment of debts across separate purchase orders. Conversely, the state maintained that public interest must prevail, given the ongoing inquiry into procurement irregularities.

In a proactive move, the petitioner offered a collateral security in the form of property title deeds to cover potential liability should the ongoing 2020 supply inquiry return adverse findings. This proposal facilitated a middle ground, allowing the court to permit partial fund release while preserving the state's interest.

Key Observations

The judgment underscores the distinction between established dues and disputed liabilities. Justice M.G.S. Kamal observed:

  • "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."
  • "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."
  • "If petitioner is found entitled for the amount claimed... balance amount together with interest at the rate of 6% p.a. from the due date till determination of the matter, shall be paid."

Court’s Directive and Future Oversight

The order mandates that the KSMSCL pay ₹1.5 crore within 15 days, secured by the property provided by the firm. The court has granted the state 90 days to conclude the inquiry into the 2020 sanitizer supplies. Should the inquiry conclude that the petitioner is entitled to the full sum, the remaining balance plus 6% interest must be cleared within 90 days of that determination. If the findings against the petitioner remain, the state is granted liberty to invoke the security provided. This ruling provides a structured, equitable framework for resolving payment backlogs while ensuring that financial accountability remains intact during active investigations.