Court Cannot Segregate Composite SIT Contracts For MSMED Act Compliance: J & K & L High Court Dismisses Appeal Against RDSS Electrification Tender Notices
Safiya Malik
The High Court of Jammu & Kashmir and Ladakh Division Bench of Chief Justice Arun Palli and Justice Rajnesh Oswal held that courts cannot split or isolate elements of a composite Supply-Installation-Testing contract merely to align the process with obligations under the MSMED Act or the 2012 procurement policy. Addressing an appeal by micro and small enterprises challenging three electrification-related tender notices, the Court stated that determining the structure and scope of such contracts lies solely with the implementing authority unless clear evidence of bad faith or improper exercise of power is shown. Concluding that the tenders were turnkey projects governed by the guidelines of the Revamped Distribution Sector Scheme, the Bench upheld their validity and dismissed the appeal.
The matter arises from three Notices Inviting Tenders issued under the Revamped Distribution Sector Scheme for electrification and sub-station works in Kupwara and Bandipora Districts. The appellants, registered as Micro and Small Enterprises under the MSMED Act, approached the court challenging the inclusion of several items in the tenders which they claimed were exclusively reserved for procurement from Micro and Small Enterprises under the Public Procurement Policy for MSEs Order, 2012. They sought directions restraining the allottees from procuring reserved items from entities outside the MSME category and for segregation of components of the tender so that the reserved items would be procured only from them.
The appellants submitted that the tenders were predominantly procurement-based and that installation constituted a minor portion of the work. They contended that the Procurement Policy of 2012 was applicable in full as it mandates that all Ministries, Departments and PSUs procure a minimum of 25% of goods and services from Micro and Small Enterprises and that 358 items are to be procured exclusively from this category. They asserted that inclusion of 16, 10 and 10 reserved items in the respective tenders violated statutory reservation. They further submitted that eligibility and qualification requirements under the tender documents had the effect of excluding them from participating.
The respondents stated that the tenders were issued strictly in compliance with the RDSS guidelines and that the contracts were in the category of Supply-Installation-Testing turnkey projects, which fall outside the purview of the MSMED Act and Procurement Policy of 2012. They clarified that procurement of goods under the Projects Wing of the department differs from stand-alone procurement managed by the Procurement Wing where the MSMED Act applies. They also stated that the tenders had already been allotted and in two cases execution had commenced. The appellants later filed an appeal against the dismissal of their writ petition.
The Court recorded that although the appeal had become infructuous due to allotment of contracts, it proceeded to adjudicate the legal issues. It stated that “the applicability of the MSMED Act, 2006, is focused on the procurement of goods and services.” It further observed that “The project under the RDSS (Revamped Distribution Sector Scheme) is structured as a turnkey contract, which by definition requires a single contractor to assume comprehensive responsibility for all phases, from initial design and procurement to final commissioning.”
The Bench recorded that “the scope is intrinsically linked to and necessarily covers the large-scale purchase, supply, and installation of all essential electrical equipment and materials, a composite activity.” It held that “the e-NITs in question are in respect of composite contracts involving supply, installation and testing.”
The Court referred to Clause 6.5.1 of the RDSS and noted that “the clause mandates that the Quality Assurance (QA) and Inspection plan must be an integral part of the contract agreement with the turnkey contractor or the equipment supplier/erection agency, as applicable.” Accordingly, it held that “the contracts under reference are composite, incorporating supply, installation, and testing as integral components, therefore inseverable.”
The Court recorded that judicial interference was impermissible merely to restructure the tenders to ensure compliance with the MSMED Act. It cited Supreme Court precedent and stated that “interference by courts is very limited” and that tender formulation and contract award fall within the employer’s domain unless “the action of the tendering authority is found to be malicious and a misuse of its statutory powers.”
The Court directed: “We have examined the judgment rendered by the learned Writ Court. While we concur with the findings of the learned Writ Court that MSMED Act would have no application in the questioned e-NITS, but at the same time, we find that the framing of issue No. 3 was not warranted at all, because the appellants could not have participated in the e-NITS due to their in-eligibility, and the writ petition preferred by them could not have been dismissed merely on account of their non-participation in the tendering process.”
The instant appeal is accordingly dismissed.
Advocates Representing the Parties
For the Petitioners/Appellants: Mr. Azhar-Ul-Amin, Senior Advocate with Mr. Hanan Hussain, Advocate
For the Respondents: Mr. Faheem Nissar Shah, Government Advocate; Mr. Nazir Ahmad, Advocate
Case Title: Zain Electricals and Others v. Union Territory of J&K and Others
Case Number: LPA No. 251/2025
Bench: Chief Justice Arun Palli, Justice Rajnesh Oswal
