Rajasthan High Court Quashes Commercial Court Decree | Return Barred Unless Order Exceeds Capacity Under Clause 9 (5) (g) | Clause 13 (9) Allows Risk Based Substitution
Isabella Mariam
The Division Bench of the High Court of Judicature for Rajasthan at Jaipur, comprising Justice Avneesh Jhingan and Justice Bhuwan Goyal, delivered a judgment on May 5, 2025, setting aside the Commercial Court's decree in a dispute concerning a failed pharmaceutical supply contract. The court quashed the lower court's order which had previously favored a pharmaceutical company seeking recovery and declaration following the en-cashing of its performance guarantee.
The Division Bench stated that the respondent's failure to adhere to the conditions laid down in the tender document invalidated its claim. The judgment specifically addressed the applicability and interpretation of Clause 9(5)(g) and Clause 13(9) of the tender document, concluding that the respondent did not fulfil the essential criteria to legally return the purchase order.
The appellants, Rajasthan Medical Services Corporation Ltd. and its Managing Director, had invited e-bids for the supply of medicines for the financial year 2013-14. The respondent, M/s Bal Pharma Ltd., emerged as the L1 bidder and was awarded a contract dated August 12, 2013. Subsequently, a purchase order dated August 27, 2013, was issued for the supply of 8.85 crore units of Omeprazole capsules, to be delivered within sixty days.
The respondent, however, via an e-mail dated September 2, 2013, expressed its inability to execute the purchase order citing "unavoidable/technical reason." The appellants, invoking Clause 13(9) of the tender, arranged alternative purchases at the respondent's risk and cost, en-cashing the performance bank guarantee worth Rs. 10,16,794 and adjusting the balance from subsequent transactions.
The respondent filed a suit for recovery and declaration, which the Commercial Court No.2, Jaipur Metropolitan, decreed in its favor on May 20, 2019. The appellants challenged the decree (CFA No. 339/2020), while the respondent filed a connected appeal (CFA No. 650/2019) seeking costs, which were not awarded despite the favourable decree.
Counsel for the appellants contended that the respondent had failed to comply with the specific conditions laid out in Clause 9(5)(g) for returning a purchase order. This clause permitted return of the order only when the order exceeded the production capacity as declared in the bid document and required the supplier to inform the authority within seven days.
It was argued that the respondent’s reason for returning the purchase order—"unavoidable/technical reason"—did not align with the permissible grounds. Reference was made to Agmatel India Private Limited vs. Resoursys Telecom And Ors. (2022) 5 SCC 362, to support the principle that "interpretation of the author of the tender document should prevail if it is in consonance with language of the tender document."
The respondent argued that it had complied with Clause 9(5)(g) by returning the purchase order within seven days. It further contended that the appellants preemptively procured medicines from the open market before the expiry of the sixty-day supply period and that such purchases were not made from the L2 or L3 bidders but from higher-priced vendors.
The Bench observed that Clause 9(5)(g) requires: “that purchase order exceeds the production capacity as declared in the bid document; and that the order be returned within seven days from the date of issuance.”
The court stated in clear terms: "It is an admitted fact that apart from the circumstances mentioned in clause 9(5) (g), the supplier cannot return purchase order." While acknowledging that the respondent had returned the order within seven days, the court held: "The language of clause 9 (5) (g) is clear that only reason available for returning the purchase order is that the purchase order exceeds production capacity as declared in the bid document but this was not the reason mentioned in the E-mail sent by respondent."
Additionally, the court noted: "It is not the case of the respondent even before this Court that the purchase order was beyond production capacity as declared in the bid document." The purchase order, it recorded, constituted only about 15% of the estimated quantity listed in the tender schedule, thereby not indicating excess beyond production capacity.
Regarding Clause 13(9), the court reaffirmed the appellants' right to arrange alternative purchases if the supplier defaulted, stating: "Once the appellants came to the conclusion that return of the purchase order was not in consonance of clause 9 (5) (g), the appellants were at liberty under clause 13 (9) to make alternative purchases at the risk and cost of the respondent."
The Bench rejected the argument that purchases should have been made from L2 and L3 bidders, stating: "The word used in clause 13(9) is 'or' meaning thereby that the appellants could have made purchase from any other source or from open market or from any other bidder who might have quoted higher rates. There was no requirement of making purchases only from L2 & L3."
As to the timing of the alternate purchases, the court stated: "The sixty days period would have come into operation if the respondent had to supply medicines as per purchase order. Whereas, on the seventh day from the date of purchase order it was returned."
The Bench also referenced the Supreme Court’s view in Galaxy Transport Agencies vs. New J.K. Roadways (2021) 16 SCC 808 and Afcons Infrastructure Ltd. v. Nagpur Metro Rail Corporation Ltd. (2016) 16 SCC 818, reaffirming that: "The owner or the employer of a project, having authored the tender documents, is the best person to understand and appreciate its requirements and interpret its documents."
The Division Bench concluded that the Commercial Court’s decree could not be sustained due to non-compliance with contractual clauses. It ordered:
"The appeal No.339/2020 is allowed. The impugned judgment and decree dated 20.05.2019 is quashed. In view of quashing of judgment and decree dated 20.05.2019, the appeal No.650/2019 for allowing of costs while allowing the suit is dismissed."
Advocates Representing the Parties:
For the Appellants: Mr. Gunjan Pathak, Ms. Ishita Rawat, and Mr. Aditya Bohra
For the Respondents: Dr. Prakash Chandra Jain and Mr. Roshan Vishwakarma
Case Title: The Rajasthan Medical Services Corporation Ltd. & Anr. versus M/s Bal Pharma Ltd. & Connected Appeal
Neutral Citation: 2025: RJ-JP:18702-DB
Case Numbers: D.B. Civil First Appeal No. 339/2020 and D.B. Civil First Appeal No. 650/2019
Bench: Justice Avneesh Jhingan and Justice Bhuwan Goyal
[Read/Download order]
