Case Note & Summary
The dispute arose from a tender floated by Nuclear Power Corporation of India Limited (NPCIL), a public sector undertaking, for a comprehensive firefighting and detection system for its nuclear power plants. The tender was a composite works contract covering design, engineering, manufacture, procurement, supply, seismic qualification, inspection, erection, commissioning, performance guarantee and handing over. Sterling and Wilson Private Limited, an engineering procurement and construction contractor, emerged as the lowest bidder (L1). Technico India Private Limited, a micro and small enterprise (MSE) registered under the Micro, Small and Medium Enterprises Development Act, 2006, was the second lowest bidder (L2) with a substantially higher price. NPCIL, invoking the Public Procurement Policy for Micro and Small Enterprises Order, 2012, issued under Section 11 of the 2006 Act, decided to award the entire contract to the L2 MSE bidder after it agreed to match the L1 price. The petitioners challenged this decision by way of a writ petition before the Bombay High Court. Their primary contention was that the procurement preference policy applies only to contracts for supply of goods or provision of services, not to composite works contracts of the kind tendered. They relied on a previous admission by the Union of India in the Delhi High Court in Shree Gee Enterprise v. Union of India that the policy does not cover works contracts. The respondents, including NPCIL and the MSE, argued that the policy and subsequent clarifications permitted award of entire non-splittable contracts to MSEs matching L1 price, and that such procurement was aimed at promoting small enterprises. The court examined the definitions under the Micro Act: 'enterprise' under Section 2(e) is limited to manufacturing of goods or providing services, and Section 11 empowers the government to notify preference policies only in respect of procurement of goods and services. The tender document clearly reflected a works contract, involving sales tax, VAT and works contract tax, and was admitted to be unsplittable and indivisible. The court held that the policy cannot expand the statutory mandate; a composite works contract is neither purely goods nor simple service, and thus falls outside the purview of the 2012 Order. The court therefore allowed the petition, quashed the award to the MSE, and directed that the contract be awarded to the L1 bidder. The interim order preventing issuance of work order was confirmed.
Headnote
A) Government Contracts – Tenders – Public Procurement Policy for MSEs – Micro, Small and Medium Enterprises Development Act, 2006, Sections 2(e), 11; Public Procurement Policy for Micro and Small Enterprises Order, 2012, Clauses 3, 6, 14, 16 – The policy is limited to procurement of goods and services as defined in the parent Act; a composite works contract involving design, engineering, manufacture, supply, erection, commissioning and performance guarantee is neither a contract for supply of goods nor a simple service contract and therefore falls outside the scope of the preference policy. The tender floated by NPCIL was an unsplittable composite works contract, and the L2 MSE bidder could not be awarded the entire contract even if it matched the L1 price. The court held that the award of the contract to Respondent No.3 under the policy was invalid and contrary to law, and directed that the contract be awarded to the L1 bidder – Held, writ petition allowed and impugned award set aside. (Paras 12-17)
Issue of Consideration
Whether the Public Procurement Policy for Micro and Small Enterprises Order, 2012 issued under Section 11 of the Micro, Small and Medium Enterprises Development Act, 2006 applies to composite works contracts, specifically the tender floated by NPCIL for firefighting and detection system involving design, engineering, manufacture, supply, erection, commissioning and performance guarantee; and whether the L2 MSE bidder can be awarded the full contract under the policy for an unsplittable/indivisible contract.
Final Decision
The writ petition is allowed; the decision of NPCIL to award the contract to Respondent No.3 under the Public Procurement Policy is quashed and set aside; the contract is directed to be awarded to the petitioner as L1 bidder; rule made absolute.
Law Points
- Micro
- Small and Medium Enterprises Development Act
- 2006 Section 11
- Public Procurement Policy for Micro and Small Enterprises Order 2012
- interpretation of goods and services
- composite works contracts
- scope of procurement preference policy
- L1 bidding
- unsplittable contracts
Case Details
2017 LawText (BOM) (07) 118
Writ Petition (L) No. 1261 of 2017 with Notice of Motion (L) No. 288 of 2017
Anoop V. Mohta, Anuja Prabhudessai
J.P. Sen, Mohi Arora, Akshay Doictor, Aseem Naphade, Arsh Misra, Nehal Shetty, Kumarjit Das, Amit Kumar Muhuri
Sterling and Wilson Private Limited, Zarine Yazdi Daruvala
Union of India, Nuclear Power Corporation of India Limited, Technico India Private Limited, Development Commissioner, Micro, Small & Medium Enterprises
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Nature of Litigation
Writ petition under Article 226 of the Constitution of India challenging the award of a tender by a public sector undertaking to a Micro and Small Enterprise under the Public Procurement Policy.
Remedy Sought
Petitioners sought to quash the decision of NPCIL to award the composite works contract to Respondent No.3 (the L2 MSE bidder) and to direct that the contract be awarded to the petitioners as the L1 bidder.
Filing Reason
NPCIL informed the petitioner that although it was the lowest bidder (L1), the contract would be awarded to the L2 MSE bidder under the Public Procurement Policy, which the petitioner contended did not apply to composite works contracts.
Previous Decisions
Interim order passed on 7 June 2017 directing Respondent No.2 to postpone issuance of work order till disposal of the petition; admission of Union in Shree Gee Enterprise case that policy does not apply to works contracts.
Issues
Whether the Public Procurement Policy for Micro and Small Enterprises Order, 2012, issued under Section 11 of the Micro, Small and Medium Enterprises Development Act, 2006, applies to composite works contracts, specifically the tender floated by NPCIL for design, engineering, manufacture, supply, erection, commissioning and performance guarantee of firefighting systems?
Whether the L2 MSE bidder can be awarded the entire unsplittable composite contract by matching L1 price under the said policy?
Submissions/Arguments
Petitioners: The policy applies only to procurement of goods and services, not to works contracts; the tender is a composite works contract; reliance on Shree Gee Enterprise case where Union admitted non-applicability.
Respondents: Policy and clarifications permit MSEs to match L1 price and be awarded full contract even for non-splittable items; policy is beneficial for MSEs; subsequent office memorandums and FAQs support award.
Ratio Decidendi
The Public Procurement Policy for Micro and Small Enterprises, framed under Section 11 of the Micro, Small and Medium Enterprises Development Act, 2006, applies only to procurement of goods and services. A composite works contract involving design, engineering, manufacture, supply, erection, commissioning, and performance guarantee is not a contract for supply of goods or simple services. Therefore, the preference policy cannot be invoked to award such a contract to an MSE bidder. The policy and its clarifications cannot expand the scope beyond the parent Act.
Judgment Excerpts
There is no issue that above contract is unsplitable and undividable. It is composite contract.
The definition of 'enterprise' of the Micro Act is reproduced as under: “ 2 (e) “enterprise” means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951) or engaged in providing or rendering of any service or services”.
The relevant section 11 is also reproduced as under : “ 11. Procurement preference policy – 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”.
Procedural History
19 October 2016: NPCIL floats tender; 22 February 2017: Price bids opened, Petitioner declared L1, Respondent No.3 L2; 18 April 2017: NPCIL informs Petitioner of intention to award contract to Respondent No.3; 29 April 2017: Petitioner's advocate sends letter stating policy does not apply to works contracts; 7 June 2017: Court orders Respondent No.2 to postpone issuance of work order till disposal; 25 July 2017: Judgment pronounced allowing the petition.
Acts & Sections
- Micro, Small and Medium Enterprises Development Act, 2006: Section 2(e), Section 11
- Industries (Development and Regulation) Act, 1951: First Schedule
