Karnataka HC Directs KSMSCL to Release Rs 1.5 Crore to Drug Supplier, Orders Sanitiser Inquiry Within 90 Days
The Karnataka High Court ordered part-payment of admitted drug supply dues to M/s Sujal Pharma, while directing a time-bound inquiry into a separate disputed COVID-era sanitiser purchase.
The High Court of Karnataka at Bengaluru, on 8 July 2026, disposed of a writ petition filed by M/s Sujal Pharma, a Bengaluru-based proprietorship firm, against the State of Karnataka and the Karnataka State Medical Supplies Corporation Limited (KSMSCL). Justice M.G.S. Kamal, sitting singly, directed KSMSCL to release Rs 1,50,00,000 as part-payment towards undisputed drug supply invoices within 15 days of receipt of a certified copy of the order. The balance remains contingent on the outcome of an inquiry into alleged defective supply of sanitisers under a separate, earlier purchase order from 2020. The court took on record a property title deed offered by the petitioner's proprietor as security against the part-payment, and warned that any false affidavit would attract contempt proceedings.
The Dispute Before the High Court
M/s Sujal Pharma was issued purchase orders by KSMSCL for supply of drugs under orders dated 01.05.2021, 14.05.2021, 20.05.2021, and 06.07.2021. The firm claimed it had supplied the drugs in full and raised invoices aggregating Rs 3,14,82,599. KSMSCL did not dispute either the fact of supply or the invoice amounts.
Despite this, KSMSCL by an email dated 29.04.2022 refused to release Rs 2,94,50,000 due under purchase order No. KSMSCL/L-2021-22/PO-113 dated 06.07.2021. Its reason: the amount had been adjusted against what it described as not-of-standard-quality drugs, expiry of drugs, and statutory deductions arising from a prior purchase order dated 27.03.2020, under which Sujal Pharma had supplied sanitisers during the COVID-19 pandemic.
The firm responded with a representation dated 09.05.2022, which went unaddressed. Sujal Pharma then filed Writ Petition No. 12583 of 2022 under Articles 226 and 227 of the Constitution, praying for a direction to KSMSCL to consider that representation and to pay Rs 3,14,82,509 together with interest at 18% per annum.
The Legal Issue: Can Admitted Dues Be Withheld Pending a Separate Inquiry?
The core question was whether KSMSCL could lawfully adjust or set off amounts admittedly payable under one set of purchase orders against disputed liabilities arising from an entirely separate purchase order issued in 2020.
Senior Advocate Sri Rajesh Mahale, appearing for the petitioner, argued that there was no contractual provision permitting such a cross-set-off between unrelated orders. He submitted that the adjustment was arbitrary and illegal. Even if there were a dispute concerning the 2020 sanitiser order, the respondents were required to conduct a proper inquiry, afford the petitioner an opportunity to be heard, and pass an appropriate order — but none of that process entitled them to withhold the admitted dues under the 2021 purchase orders.
Counsel for KSMSCL, Sri Sumana Baliga M., contended that the matter was embedded in the broader COVID-19 medical procurement irregularities that the State had referred to a Commission of Inquiry headed by retired Justice John Michael Cunha. That commission had recommended initiating recovery proceedings against Sujal Pharma for approximately Rs 2,60,00,000. Given that public money was at stake, KSMSCL argued it was justified in withholding payment pending determination of those liabilities.
Counsel for KSMSCL also pointed to the General Conditions of the tender documents, which she submitted allowed subsequent bill amounts to be adjusted against defective supply. She further clarified that the sanitiser purchase order dated 27.03.2020 had been issued without a formal tender process, as an exemption from Section 4G of the Karnataka Transparency in Public Procurement Act had been granted in view of the COVID-19 pandemic.
How the Bench Reasoned
Justice Kamal recorded that there was no dispute about the fact of drug supply under the 2021 purchase orders, nor about the petitioner's entitlement to Rs 3,14,82,599 in respect of those invoices. The court had earlier, by order dated 29.06.2026, directed KSMSCL to produce records relating to the 2021 transactions. It was only after that direction and the ensuing submissions that the full picture of the set-off claim became clear.
The court did not accept that the existence of a pending inquiry into the 2020 sanitiser order could indefinitely stall payment of admitted dues under distinct purchase orders. At the same time, it acknowledged that public money was involved and that the respondents had a legitimate interest in ensuring the security of any amounts released, pending resolution of the sanitiser dispute.
The practical solution emerged from a proposal by Senior Counsel for the petitioner: Sujal Pharma would furnish security against the payment, corresponding to the enquiry outcome concerning the sanitiser order. Acting on that proposal, the proprietor Sri Vijay Kumar B. Bhojani filed an affidavit offering as security the title deeds to Flat No. 009, Ground Floor, “Flourish Gurushree Apartments,” a property of approximately 1,212 square feet (plus 258 square feet undivided share) at Malathahalli Village, Yeshwanthpura Hobli, Bengaluru North Taluk, bearing khata No. 52/52/356/3/1.
The affidavit acknowledged that KSMSCL's total outstanding liability, including principal of Rs 3,14,82,599 and interest accrued at 10% per annum from 17.05.2021, stood at Rs 5,14,41,183. The property offered was valued at approximately Rs 1,50,00,000, while the sanitiser supply under the 2020 order in dispute was valued at approximately Rs 2,50,00,000. Senior Counsel accordingly proposed that Rs 1,50,00,000 be released immediately, with the property serving as security to that extent, and the balance be paid after conclusion of the inquiry.
KSMSCL's counsel reserved objections about the accuracy of the affidavit but did not resist an order if appropriate consequences for a false affidavit were built in. The court accepted this, and built in express contempt and refund liability for any falsity.
Directions Issued
Justice Kamal issued the following directions upon disposal of the petition:
KSMSCL is to release Rs 1,50,00,000 as part-payment towards the drug supply purchase orders dated 01.05.2021, 14.05.2021, 20.05.2021, and 06.07.2021 within 15 days of receiving a certified copy of the order. The property title deed and affidavit filed by the proprietor are taken on record as security against this payment.
KSMSCL is directed to conduct and complete the inquiry into the alleged defective supply of sanitisers under the 27.03.2020 purchase order within 90 days of receiving the certified copy.
If, at the conclusion of that inquiry, Sujal Pharma is found entitled to the balance amount under the 2021 purchase orders, the balance is to be paid with interest at 6% per annum from the due date, within a further 90 days from the date of such determination.
The Rs 1,50,00,000 now directed to be released is expressly subject to the outcome of the sanitiser inquiry. The security offered shall remain valid against whatever amount may be determined. Should the petitioner be found liable to pay on account of defective sanitiser supply and wish to challenge that finding, he may seek appropriate legal remedy within 30 days, after which KSMSCL will be at liberty to invoke the security.
The court made clear that if the affidavit or the property offered as security is found to be defective or false, the petitioner will be liable to refund the released amount with interest and will also face contempt of court proceedings.
Order
Writ Petition No. 12583 of 2022 was disposed of on 8 July 2026 by Justice M.G.S. Kamal. KSMSCL must release Rs 1,50,00,000 within 15 days, complete the sanitiser inquiry within 90 days, and settle any balance owed on the 2021 drug supply invoices within 90 days of the inquiry's conclusion, at 6% per annum interest. The petitioner's property stands as court-registered security throughout.