MSME Act | Procurement Order 2012 Has Force Of Law, Authorities Subject To Judicial Review : Supreme Court
The Supreme Court recently (on February 25) held that the Procurement Order 2012 issued as per the Micro, Small and Medium Enterprises Development Act, 2006, has the force of law and is enforceable.The Court further held that while the MSME Act and the Procurement Order 2012 do not create an 'enforceable right' for an individual MSE, the statutory authorities and administrative bodies...
The Supreme Court recently (on February 25) held that the Procurement Order 2012 issued as per the Micro, Small and Medium Enterprises Development Act, 2006, has the force of law and is enforceable.
The Court further held that while the MSME Act and the Procurement Order 2012 do not create an 'enforceable right' for an individual MSE, the statutory authorities and administrative bodies created thereunder are impressed with enforceable duties. They are accountable and subject to judicial review.
The Court observed that while exercising judicial review, in matters concerning the implementation of an Act or its policy objectives, the first duty of the courts is to see whether the relevant authorities are functioning effectively.
Elaborating on the advantage of such an approach, the Court said that since such statutory bodies consist of domain experts, this will ensure informed decision-making. Further, there will be real-time assessments about the working of the policies, enabling necessary course correction for future policymaking.
“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.'”
The bench of Justices P.S. Narasimha and Sandeep Mehta made these observations while holding that the bodies constituted under the Micro, Small and Medium Enterprises Development Act and the Procurement Policy Order 2012 (notified under the Act), are accountable, and their function is subject to judicial review.
“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.,” the Court held.
To provide a brief background, in the present case, the petitioner, a Micro Enterprise, had produced a special form of medication to treat serious fungal infections. It claimed that while it has attempted to participate in several public procurement processes to supply the drug, it has continuously faced disqualification. The ground for the same was 'minimum turnover clauses' prescribed in the Notice Inviting Tenders issued by the Government. Given that the petitioner is a Micro Enterprise, its turnover was lower.
Challenging one of such tenders issued by PGIMER, Chandigarh, the petitioner approached the High Court in its writ jurisdiction. Having its plea dismissed, the petitioner approached the Apex Court.
At the outset, the Court discussed the enactment of the Act and Section 11, which provides for procurement preference policy. The same reads as:
“For facilitating promotion and development of micro and small enterprises, the Central Government or the State Government may, by order notify from time to time, preference policies in respect of procurement of goods and services, produced and provided by micro and small enterprises, by its Ministries or departments, as the case may be, or its aided institutions and public sector enterprises.”
In the exercise of this provision, the above procurement policy was notified. The policy mandated yearly procurement of a minimum of 25 per cent from MSEs. Apart from this, 358 items were reserved for exclusive procurement from MSEs. Another important feature of this policy was the constitution of a Grievance Cell for redressal of “imposition of unreasonable conditions in tenders floated by the Government Departments or agencies that put Micro and Small Enterprises at a disadvantage”.
“Having considered the provisions of the Act and the MSE Procurement Preference Policy, 2012, we are of the opinion that there is no mandatory minimum procurement 'right' of an individual MSE. However, there is certainly a statutory foundation for the Procurement Preference Policy, 2012, having force of law as it 'encapsulates a mandate and discloses a specific purpose'., the Court said.
The Court noted that while the Central Government seem to have complied with the policy requirement of procuring 25%, it is not clear whether the said procurement includes exclusive procurement of the 358 items.
Stressing the importance of statutory bodies, the Court opined that the Review Committee (constituted under the policy), which is required to monitor the achievements of this policy, should resolve this issue. The Court prescribed a timeline of 60 days for doing the same.
“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.”
With respect to “minimum turnover clauses”, the petitioners had argued that the same is arbitrary and violative of Articles 14 and 19 of the Constitution. They reasoned that such clauses bear no rational nexus with the object of procuring safe medicines. Further, it is also contrary to the policy as it circumvents the aforesaid 25% mandate.
To address this, the Court cited Association of Registration Plates v. Union of India, (2005) 1 SCC 679; wherein it held: “The insistence of the State to search for an experienced manufacturer with sound financial and technical capacity cannot be misunderstood.”. However, distinguishing this from the present case, the Court said:
“Although it is generally permissible for the government, and its instrumentalities to provide minimum turnover criteria wherever “public safety, health, critical security equipment, etc.”,26 are involved, it must be ensured that such prescriptions do not defeat the Procurement Order 2012. It is necessary to lay down clear guidelines for ministries, departments, and instrumentalities… The Procurement Order 2012 declares the procurement preference obligations of the State and therefore statutory and executive authorities are bound to implement the same. Minimum turnover clauses cannot undermine or override the Procurement Preference Policy 2012.”
Given that the Grievance Cell was required to examine the imposition of unreasonable conditions in tenders, the Court directed it along with other authorities to adjudicate on limits of minimum turnover clauses and issue necessary guidelines, within 60 days.
In view of these directions, the petition was disposed of.
Case Name: Lifecare Innovations Pvt Ltd vs Union Of India., WRIT PETITION (C) NO. 1301 OF 2021
Citation : 2025 LiveLaw (SC) 256
