SUPREME COURT HOLDS THAT NO MINIMUM PROCUREMENT RIGHT CAN BE PROVIDED FOR INDIVIDUAL MICRO, SMALL ENTERPRISES
A two Judge Bench of the Hon’ble Supreme Court comprising of Justice Pamidighantam Sri Narasimha & Justice Sandeep Mehta passed a judgement dated 25.02.2025 in the matter of Lifecare Innovations Pvt. Ltd. & Anr. v. Union of India & Ors. Writ Petition (C) No. 1301 of 2021 wherein the Hon’ble Bench held that the authorities must rectify the unfair conditions in Government tenders that place Micro and Small Enterprises at a disadvantage.
Facts
The Petitioner Company (Company) is engaged in pharmaceuticals and medical biotechnology, particularly in the development and manufacturing of healthcare products. The Company had a business of supplying a nano-drug used to treat serious fungal infections. The Petitioners attempted to participate in several public procurement tenders to supply their product (LAmB) to Government institutions. However, they were repeatedly disqualified due to the mandatory “minimum turnover” requirement in Government tenders. In the previous litigations, the Petitioner challenged the Post Graduate Institute of Medical Education & Research (PGIMER), Chandigarh (2017) (Tender) which required a minimum turnover of 20 crores and cumulative turnover of 200 crores for the last 3 years. These requirements automatically disqualified the Petitioner from participating and bidding in the tenders. The Petitioners challenged the PGIMER Tender by filing a Writ Petition before the Punjab and Haryana High Court bearing no. (CWP No. 2268/2017).
However, the Hon’ble High Court dismissed the said Petition on 05.04.2017. The Petitioners then filed a Special Leave Petition bearing no. SLP No. 14026/2017 before the Supreme Court, which is still pending. In the present case, the Petitioners expanded their challenge, seeking broad reliefs applicable to all Government tenders and not just the PGIMER Tender.
The Petitioner’s arguments were that the minimum turnover clauses are arbitrary and discriminatory and also violates Article 14 (Right to Equality) & Article 19(1)(g) (Right to Practice Any Profession) of the Petitioner Company. Moreover, the Petitioner stated that turnover does not reflect manufacturing capability or drug efficacy. The Petitioner further contended that Section 11 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED) (Procurement preference policy), along with the 2012 Procurement Policy, which mandates that at least 25% of Government procurement should be sourced from MSEs. Thus, by imposing high turnover requirements, Government agencies are circumventing this policy. This also creates an unfair advantage for larger firms and defeats the purpose of MSME promotion.
Issues
- Whether the requirement of a minimum turnover in Government Tenders violates Articles 14 and 19 of the Constitution and defeats the purpose of promoting MSEs under the MSMED Act, 2006?
- Whether the MSMED Act, 2006, along with the Public Procurement Policy for MSEs, 2012, mandates that 25% of Government procurement must be sourced from MSEs.
Judgement by the Hon’ble Supreme Court
The Hon’ble Supreme Court held that the Public Procurement Policy for MSEs, 2012, issued under Section 11 of the MSMED Act, has the force of law. The Supreme Court ruled that ‘Minimum Turnover’ clauses should not override the 2012 Procurement Policy and should be rational, proportional, and not disadvantage specialized MSEs.
The Hon’ble Bench also held that the Government can impose minimum turnover clauses in tenders to ensure reliability and capacity. The Apex Court stated that if turnover clauses unfairly prevent MSEs from competing, it may amount to discrimination and restrict the freedom to trade and be violative of Article 14 of the Constitution of India. The Hon’ble Court emphasized that institutions implementing the MSMED Act (e.g., National Board for MSMEs, Review Committee, Grievance Cell, etc.) must function effectively and ensure that there is no discrimination against the MSEs. On the other hand, the Bench held that MSEs do not have an individual enforceable right to demand procurement.
However, the Government agencies have a duty to meet procurement targets, making them accountable to judicial review. The Review Committee under Clause 12 is responsible for ensuring compliance with the Procurement Policy. The Hon’ble Court further laid down the following directives-
Review of Minimum Turnover Clauses:
The Grievance Cell under Clause 13 must assess and issue guidelines on acceptable limits for turnover clauses to ensure MSEs are not unfairly excluded from tenders and such guidelines must be issued within 60 days.
Judicial Oversight:
The Supreme Court retains the right to judicially review the implementation of the Procurement Policy, 2012, particularly in ensuring that the Grievance Cell and Review Committee are functioning properly. Thus, the Writ Petition was disposed of with directions and no costs were awarded to the Parties.
Conclusion
The present Judgement strengthens MSE participation in public procurement, ensuring that Government agencies cannot use turnover clauses as a barrier. The Judgement also ensures greater accountability from Government bodies tasked with implementing MSE procurement policies. Moreover, the Bench sets a precedent for judicial review of procurement policies, balancing economic policies with constitutional rights. This ruling reinforces the Government’s obligation to promote small enterprises, aligning with India’s MSME growth strategy and economic inclusivity goals.
ARJAV JAIN
ASSOCIATE
THE INDIAN LAWYER & ALLIED SERVICES
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