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TMI Blog2025 (3) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... under the present Micro, Small and Medium Enterprises Development Act in 2006, which not only created different classes of enterprises under Section 7, but also established an Advisory Committee to advise the Central government regarding the classification of enterprises, a National Board for MSMEs under Section 3, the functions of which are provided in Sections 5 and 6, inter alia to deal with, "factors affecting the promotion and development of micro, small and medium enterprises and review the policies and programmes of the Central Government" and to "make recommendations on matters referred to it by the Central Government which are necessary or expedient for facilitating the promotion and development and enhancing the competitiveness of the micro, small and medium enterprises". Clause 3 of the policy sets annual goals of procurement from MSEs from the financial year 2012-13 itself. The object of the said clause is to achieve an overall procurement of a minimum of 25 percent of total annual purchases of products and services from MSEs within a period of 3 years. Sub-clause (3) clarifies that after a period of 3 years, commencing from 2015, the overall procurement goal "shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertakings for exemption from 25% on a case-to-case basis. The Review Committee also has the obligation to ''monitor the achievements of the policy''. As the Review Committee is entrusted with reviewing and monitoring the performance of the sector, we are of the opinion that this body, comprising domain experts, must examine this issue, take an appropriate decision and ensure its implementation. The respondents, in particular the Review Committee constituted under clause 12 of the Procurement Preference Policy 2012 are directed to examine this issue of mandatory procurement of 25 per cent of goods and services by the Government, its departments and instrumentalities from the MSEs under clause 3 of the Policy and notify whether the said procurement would be independent of the 358 items reserved for procuring from MSEs and take such action as is necessary for compliance of the Procurement Order 2012 and upload its decisions for the purpose of clause 5 of the Policy. The necessary action shall be taken within 60 days from the order. Is the prescription of mandatory minimum turnover clause in NITs violative of articles 14 and 19 of the Constitution, provisions of the MSMED Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age" to examine limits of minimum turnover clauses and issue necessary and appropriate policy guidelines. Conclusion - i) The Public Procurement Policy for Micro and Small Enterprises (MSEs) Order 2012 has force of law as it is formulated in exercise of power under Section 11 of the Act and also encapsulates the purpose and object of the Act. ii) Though there is no mandatory minimum procurement 'right' for an individual MSE there is certainly a statutorily recognized obligation on the authorities and the bodies under the Act and the Procurement Order 2012 to implement the mandate which is subject to judicial review. iii) The judicial review will primarily ensure proper constitution and effective functioning of the authorities the National Board for MSMEs, the Advisory Committee, the Facilitation Council, the Review Committee and the Grievance Cell and leave the policy and decision making to them. iv) The respondents, and in particular, the Review Committee constituted under clause 12 of the Procurement Preference Policy 2012 to examine the issue of mandatory procurement of 25 per cent of goods and services by the Government, and its instrumentalities from MSEs under clause 3 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... National Board for MSMEs, Advisory Committee, Facilitation Council under the statute, and in particular, the establishment of the Review Committee and the Grievance Cell under the Procurement Order 2012, we have issued specific directions to address the issues arising for consideration and issue necessary guidelines for the effective implementation of the Procurement Order 2012. 2. Brief facts: The brief facts necessary for the disposal of the case are as follows. The first Petitioner is a Micro Enterprise under Section 7 of the MSMED Act, 2006, and operates in the pharmaceuticals and medical biotechnology sector. More specifically, the Enterprise's business involves the manufacturing, development and marketing of healthcare products. The second petitioner, the founder and managing director of the enterprise, is a specialist in the application of 'Liposome Technology' for healthcare, a technology utilised for delivering drugs to the human body. Put simply, this involves enveloping a drug in a bubble made of fats or lipids, which can be dissolved and absorbed directly into the specific site of the body targeted for treatment. Pertinent in the context of this petition is the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of Punjab and Haryana, challenging the NIT issued by PGIMER, Chandigarh in 2017. Similar contentions were raised before the High Court, but the writ petition was dismissed by an order dated 05.04.2017. The petitioners filed a Special Leave Petition6 against the dismissal order, and this Court issued notice on 09.05.2017, which is pending disposal. 6. By this petition under Article 32 of the Constitution, the petitioners seek wider directions for all States and their instrumentalities to; a) consider the bids of MSEs irrespective of the minimum turnover clauses in the tenders notification, b) in the alternative, to quash the NITs being contrary to the 2012 Policy7, c) direct the respondents to withdraw or cancel their orders rejecting the Enterprise's bid and, further, d) direct the respondents that any minimum turnover clauses should be confined to revenues received from specific drugs and e) such other orders as deemed necessary. 7. Submissions: Mr. V. Giri, Ld. Senior Counsel for the petitioners submitted that the prescription of such minimum turnover clauses is arbitrary and violative of Articles 14 and 19 of the Constitution because such clauses bear no rational nexus with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upplier, which is essential, particularly for procurement of drugs. Similar arguments were advanced by other counsels representing other respondent States and Public Sector undertakings. 10. Issues: The following two questions arise for our consideration: 1. Does the MSMED Act, coupled with the Procurement Preference Policy, 2012 mandate procurement of 25 percent of goods and services by the government, and its instrumentalities from the Micro and Small Industrial Enterprises? and 2. Is the prescription of mandatory minimum turnover clause in NITs violative of articles 14 and 19 of the Constitution, provisions of the MSMED Act and the Procurement Preference Policy, 2012? 11. Recognition of MSMEs in India and the enactment of the Micro, Small and Medium Enterprises Development Act, 2006.8 From post-modernism to meta-modernism, economies have witnessed a shift from Industries to Enterprises. These enterprises are alluded to as the backbone of emerging economies. Recognising the significant contribution of enterprises, the United Nations observed9: "MSMEs help reduce levels of poverty through job creation and economic growth; they are key drivers of employment, decent jobs a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terprises, a National Board for MSMEs under Section 3, the functions of which are provided in Sections 5 and 6, inter alia to deal with, "factors affecting the promotion and development of micro, small and medium enterprises and review the policies and programmes of the Central Government" and to "make recommendations on matters referred to it by the Central Government which are necessary or expedient for facilitating the promotion and development and enhancing the competitiveness of the micro, small and medium enterprises". Section 9 of the Act enables the Central Government to adopt measures that may be necessary for the promotion, development, and enhancement of the competitiveness of MSMEs. Section 10 speaks of progressive credit facilities for these MSMEs. Section 11 is the provision for procurement preference policy. Section 11 is important for our consideration. Under this provision, the Central or State governments notify the preference policies with respect to the procurement of goods and services produced and provided by micro and small enterprises by its ministries, departments, aided institutions, or public sector enterprises. Section 11 is reproduced hereinbelow for re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3. Mandatory procurement from Micro and Small Enterprises. - (1) Every Central Ministry or Department or Public Sector Undertaking shall set an annual goal of procurement from Micro and Small Enterprises from the financial year 2012- 13 and onwards, with the objective of achieving an overall procurement of minimum of 20 per cent, of total annual purchases of products produced and services rendered by Micro and Small Enterprises in a period of three years. (2) Annual goal of procurement also include sub-contracts to Micro and Small Enterprises by large enterprises and consortia of Micro and Small Enterprises formed by National Small Industries Corporation. (3) After a period of three years i.e. from 1st April 2015, overall procurement goal of minimum of 20 per cent shall be made mandatory. (4) The Central Ministries, Departments and Public Sector Undertakings which fail to meet the annual goal shall substantiate with reasons to the Review Committee headed by Secretary (Micro, Small and Medium Enterprises), constituted in Ministry of Micro, Small and Medium Enterprises, under this Policy. Cl. 5. Reporting of targets in Annual Report. ─ (1) The data on Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment raised by Micro and Small Enterprises with Departments or agencies concerned, including imposition of unreasonable conditions in tenders floated by Government Departments or agencies that put Micro and Small Enterprises at a disadvantage." 17. Clause 3 of the policy sets annual goals of procurement from MSEs from the financial year 2012-13 itself. The object of the said clause is to achieve an overall procurement of a minimum of 25 percent of total annual purchases of products and services from MSEs within a period of 3 years18. Sub-clause (3) clarifies that after a period of 3 years, commencing from 2015, the overall procurement goal "shall be made mandatory". The consequence of non-compliance with the mandate is contemplated under sub-clause (4), where the ministries, departments and public sector undertakings that fail to meet the annual goal are obligated to justify with reasons and are made answerable to the Review Committee. 18. The Review Committee. We have already extracted hereinabove clause 12(2) under which the Procurement Order 2012 establishing a Review Committee to; i) review the list of 358 items reserved for micro and small enterprises, ii) consider exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablished to realise the purpose and object of the Act. The planning, promotion and development (Section 9) of the MSEs and the procurement preference policy (Section 11) are to be declared and notified by the Central or State Governments. Procurement Order 2012 also prescribes that Annual Plans (Clause 7) and Annual Reports (Clause 4) are to be prepared and uploaded for transparency and public information. 20. The existing legal regime of public procurement from micro and small enterprises can now be identified as mandating; (a) Initially setting annual goals of procurement for a period of 3 years (Clause 3) and thereafter mandating yearly procurement of a minimum of 25 percent of procurement by the ministries, departments, and public sector undertakings (Clause 3(3)). (b) 358 items appended to the Procurement Preference Policy 2012 are reserved for exclusive procurement from MSEs. (c) Requiring the ministries, departments and public sector undertakings to prepare an Annual Procurement Plan (Clause 8) for purchase and to upload the same on their official website. This is to subserve the purpose of the MSEs to get advanced information about the requirements of procuring agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessments. 22. While exercising judicial review of administrative action in the context of Statutes, laws, rules or policies establishing statutory or administrative bodies to implement the provisions of the Act or its policy, the first duty of constitutional courts is to ensure that these bodies are in a position to effectively and efficiently perform their obligations. This approach towards judicial review has multiple advantages. In the first place, while continually operating in the field with domain experts, these bodies acquire domain expertise, the consequence of which would also be informed decision-making and consistency. Further, the critical mass of institutional memory acquired by these bodies will have a direct bearing on the systematic development of the sector and this will also help handling polycentric issues. Thirdly, while continuously being on the field, and having acquired the capability of making real-time assessments about the working of the policies, these bodies will be in a position to visualize course correction for future policymaking. 23. Shifting the focus of judicial review to functional capability of these bodies is not to be understood as an ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would decide the case. In this process, a large number of decisions rendered by this Court on sensitive environmental, forest, and ecological matters constitute the critical mass of our environmental jurisprudence. This Court would continue to exercise judicial review, particularly in environmental matters, whenever necessary. 30. We, however, seek to emphasise and reiterate the importance of ensuring the effective functioning of these environmental bodies, as this is imperative for the protection, restitution, and development of the ecology. The role of the constitutional courts is therefore to monitor the proper institutionalisation of environmental regulatory bodies and authorities." 25. Returning to the MSMED Act and the Procurement Order 2012, we must focus on the functioning of the bodies created and established thereunder. We hold that these bodies are accountable, and their function is subject to judicial review. For disposal of this case, we are equally considered with the effective functioning of these bodies. 26. Ms. Vanshaja Shukla, representing the Union of India, has brought to our notice the statistics indicating the percentage of public procurement from micro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Committee is specifically entrusted with the twin duties of (i) reviewing the 358 items exclusively reserved for MSEs and (ii) considering the request of the ministries, departments and public sector undertakings for exemption from 25% on a case-to-case basis. The Review Committee also has the obligation to ''monitor the achievements of the policy''. As the Review Committee is entrusted with reviewing and monitoring the performance of the sector, we are of the opinion that this body, comprising domain experts, must examine this issue, take an appropriate decision and ensure its implementation. 29. In view of the above, we direct the respondents, in particular the Review Committee constituted under clause 12 of the Procurement Preference Policy 2012, to examine this issue of mandatory procurement of 25 per cent of goods and services by the Government, its departments and instrumentalities from the MSEs under clause 3 of the Policy and notify whether the said procurement would be independent of the 358 items reserved for procuring from MSEs and take such action as is necessary for compliance of the Procurement Order 2012 and upload its decisions for the purpose of clause 5 of the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mental rights of the class of intending tenderers under Article 19 of the Constitution. 43. ...Article 14 of the Constitution prohibits the Government from arbitrarily choosing a contractor at its will and pleasure. It has to act reasonably, fairly and in public interest in awarding contract. At the same time, no person can claim a fundamental right to carry on business with the Government. All that he can claim is that in competing for the contract, he should not be unfairly treated and discriminated, to the detriment of public interest." (emphasis supplied) 32. Courts approach is also based on the idea that the executive should have greater latitude in selecting contractors and prescribing eligibility requirements. See, generally, Tata Cellular v. Union of India, (1994) 6 SCC 651; Monarch Infrastructure (P) Ltd. v. Commissioner, Ulhasnagar Municipal Corporation, (2000) 5 SCC 287. 33. However, the law as applicable for procurement through MSEs stands on a different footing. This is for the reason that there is a statutory prescription for notifying a procurement preference policy (Section 11), and in furtherance of such a statutory prescription, the Preference Policy 2012 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Government Departments or Agencies that put Micro and Small Enterprises at a disadvantage." 35. The Grievance Cell is specifically mandated to take up issues relating to the imposition of unreasonable conditions in tenders floated by Government departments or agencies that put MSEs at a disadvantage. This will certainly include the prescription of minimum turnover clauses. The functioning of the Grievance Cell has come under the scrutiny of the Comptroller and Auditor General of India27, which has suggested improvement in the functioning of this body in the following terms: "Clause 13 of the Public Procurement Policy Order, 2012 envisages setting up of a Grievance Cell in Ministry of MSME for redressing grievances of MSE in Government Procurement. The function of the Cell was to take up issues related to Government Procurement raised by MSE with Departments or agencies concerned. Scrutiny of records revealed that the total of 2253 grievances had been received in DC (MSME) during the last five years (250: Internet Grievance Monitoring System (IGMS), 193: Centralised Public Grievance Redress and Monitoring System (CPGRAM) and 1810: letters). However, only three of these grie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lection of a particular firm." 37. We had indicated to Mr. Giri, that the purpose and object of entertaining this Writ Petition under Article 32 of the Constitution is not so much to enquire into the individual grievance of the petitioner than to examine the nature of the rights created by the Procurement Order 2012 and the remedies available to the stakeholders, and to declare with clarity, certainty the scope of judicial review for effective implementation of the Policy. 38. In this view of the matter, apart from the earlier direction relating to mandatory procurement, we also direct the authorities under the Act, including the Review Committee and in particular the Grievance Cell, which is specifically entrusted with the obligation to redress "imposition of unreasonable conditions in tenders floated by Government Departments or agencies that put Micro and Small Enterprises at a disadvantage" to examine limits of minimum turnover clauses and issue necessary and appropriate policy guidelines. 39. Having considered the matter in detail, this writ petition is disposed of directing: (a) the Public Procurement Policy for Micro and Small Enterprises (MSEs) Order 2012 has force of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conomic Landscape' (Press Information Bureau) X X X X Extracts X X X X X X X X Extracts X X X X
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