Delhi HC Refuses to Lift Ban on Medipol Pharma After Substandard Clarithromycin, Noscapine Supplied to Armed Forces

New Delhi: The Delhi High Court has refused to stay the two-year debarment of Medipol Pharmaceutical India Pvt. Ltd. by the Directorate General of Armed Forces Medical Services (DGAFMS), even as certain batches of Clarithromycin 500 mg tablets and Noscapine cough syrup supplied by the company were flagged as "Not of Standard Quality" by government laboratories. The court clarified that the debarment would not affect Medipol's ongoing contracts with other government departments.

Justice Purushaindra Kumar Kaurav was hearing Medipol’s plea under Section 9 of the Arbitration and Conciliation Act, 1996, challenging a May 1, 2025, order debarring the company for two years from supplying drugs to DGAFMS.

The case arose after Medipol was awarded two contracts through e-tenders in 2022 and 2023 for supplying Clarithromycin 500 mg tablets and Noscapine cough syrup. The first contract ran from November 2022 to November 2024, while the second was effective from August 2023 to August 2025.

In December 2024, the Deputy Drugs Controller directed Medipol to recall a batch of Clarithromycin after it was declared “Not of Standard Quality” by the Central Drugs Laboratory (CDL), Kolkata. Subsequently, in January 2025, DGAFMS demanded a refund of over Rs 15.8 lakh for the defective batch.

According to the court order,

"Thereafter, vide letter dated 04.12.2024 of Deputy Drugs Controller, Central Drugs Standard Control Organisation, the petitioner was directed to recall a batch of Clarithromycin as the same had allegedly been declared as ‘Not of Standard Quality’ by the Central Drugs Laboratory, Kolkata. It appears that the petitioner, thereafter, recalled the aforesaid batch."

Reiterating the same, respondent No.2 issued a letter dated 25.01.2025 stating therein, that the test report dated 28.11.2024 issued by the Government Analyst, CDL, Kolkata, declaring Clarithromycin as ‘Not of Standard Quality’ as the sample allegedly did not conform to prescribed I.P. with respect to dissolution, and instructed the petitioner to refund whole cost of regular quantity of 142700, amounting to Rs. 15,80,659/-, either by cheque or demand draft, latest by 28.02.2025.

In continuation with the above, in March 2025, DGAFMS issued a show-cause notice, citing repeated quality failures, and also flagged issues with a batch of Noscapine cough syrup tested in Madurai.

The court observed,

"It is also pertinent to mention herein that along with the show cause notice (SCN), respondent No. 2 sent an unclear and illegible copy of the alleged test report dated 05.08.2024, whereby the sample of Noscapine, manufactured by the petitioner, has been declared as 'Not of Standard Quality' by the Government Analyst, Drug Testing Laboratory, Madurai, as the sample did not conform to the label claim with respect to the content therein.

The petitioner appears to have submitted a reply dated 19.04.2025.

Despite Medipol’s reply in April 2025, the authority passed an order on 1 May 2025, debarring the company for two years from future business dealings with DGAFMS.

"Subsequently, the petitioner, thereafter, was debarred for two years by the respondent no.2 vide order dated 01.05.2025." the order added.

Challenging the order, Medipol moved the Delhi High Court under Section 9 of the Arbitration and Conciliation Act, arguing that the penalty was excessive and imposed without adequate hearing. It also pointed to the arbitration clause in the contract.

The Union of India opposed the plea, arguing that under the Defence Procurement Manual, 2009, continued poor performance justified a ban.

The Clause 3.5.1. of DPM, 2009 reads as under:

“3.5.1 Ban on dealings: When the misconduct of a firm or its continued poor performance justifies imposition of ban on business relations with the firm, this action should be taken by the appropriate authority after due consideration of all factors and circumstances of the case and after giving due notice.”

After considering the submissions, the Court held that the DGAFMS was within its rights to impose the debarment, having considered Medipol’s reply and noted,

"Consequently, the Court finds that an opportunity of hearing was extended to the petitioner and his reply has also been considered. On due consideration, if respondent No.2 (DGAFMS) found that the petitioner company was in continued poor performance, the same, prima facie, justified the debarment for a period as stipulated in the impugned order unless the same is interfered with by the Arbitral Tribunal after affording an adequate opportunity of hearing to both parties."

However, Justice Kaurav directed that the order “shall not be used by any other government department to debar the petitioner from future participation” and that ongoing contracts of the company would not be disrupted.

"The Court, however, finds that till the legitimacy of the impugned order dated 01.05.2025 is fully tested by the Arbitral Tribunal, the petitioner should not be subjected to any further debarment by any other firm/company/government with which the petitioner may have been engaged."

"At this stage, it is thus clarified that the debarment of the petitioner for two years by the respondents is not interfered with. However, the petitioner shall not be debarred by any other Government Department from any future participation on the basis of the impugned debarment. Further, the same shall not result in the discontinuation of the petitioner’s ongoing contracts."

All the submissions made on behalf of the petitioner and the respondents, however, shall be considered by the Arbitral Tribunal while adjudicating the main dispute. Finally, with the consent of both parties, the Court appointed advocate Mitakshara Goyal as the sole arbitrator to adjudicate the dispute arising from the termination and debarment.

In view of the above, the court noted,

"With the consent of the parties, the Court also deems it appropriate to appoint an Arbitrator who shall adjudicate the dispute that has arisen with

respect to the termination of the petitioner’s contract.

Accordingly, Ms. Mitakshara Goyal (Mobile No.:-9958966077, email id: mgoyal@svarniti.com) is appointed as the sole Arbitrator.

The Sole Arbitrator may proceed with the arbitration proceedings, subject to furnishing to the parties, requisite disclosures as required under Section 12 of the Act.

The Sole Arbitrator shall be entitled to fee in accordance with the IVth Schedule of the Act; or as may otherwise be agreed to between the parties and the Sole Arbitrator.

The parties shall share the Arbitrator's fee and arbitral cost, equally.

All rights and contentions of the parties in relation to the claims/counterclaims are kept open, to be decided by the Sole Arbitrator ontheir merits, in accordance with law."