J&K&L High Court : MSE Procurement Mandates Under MSMED Act Limited To Goods And Services | Composite SIT Contracts Held Outside Policy Scope
Safiya Malik
The High Court of Jammu & Kashmir and Ladakh, Single Bench of Justice Wasim Sadiq Nargal, dismissed a writ petition challenging the issuance of tenders related to supply, installation, and testing of electrical infrastructure. The Court held that the Public Procurement Policy for Micro and Small Enterprises (MSEs), framed under Section 11 of the Micro, Small and Medium Enterprises Development Act, 2006 and issued vide S.O. 581(E) dated 23 March 2012, was not applicable to composite contracts involving Supply, Installation, and Testing (SIT). The Court further stated that the petitioners, having not participated in the tender process, lacked the locus standi to maintain the petition. Consequently, the interim order staying the tenders was vacated, and the writ petition was dismissed.
The writ petition was filed by three enterprises—Zain Electricals, Northern Transformers, and North Sun Enterprises—each represented through their respective proprietors. They challenged the issuance of tenders by government authorities for projects concerning supply, installation, and testing of electrical works. The petitioners asserted that the respondents had violated statutory obligations under Section 11 of the MSMED Act, 2006 and the Public Procurement Policy issued through S.O. 581(E) dated 23 March 2012.
The petitioners contended that these statutory provisions mandated a certain percentage of procurement to be reserved for Micro and Small Enterprises. They submitted that by disregarding these statutory and policy requirements, the respondents acted contrary to law and undermined the legislative intent of promoting small enterprises. They further claimed that the impugned tenders disregarded Clause 3 and Clause 11 of S.O. 581(E), which required 25% of total annual procurement to be sourced from MSEs and reserved 358 items exclusively for procurement from MSEs.
The petitioners relied upon Section 11 of the MSMED Act, 2006, arguing that the procurement preference was mandatory. They contended that the scope extended not only to goods but also to services produced and provided by MSEs. They stated that the procurement requirement, which was initially 20%, had been enhanced to 25%. Petitioners maintained that failure to procure from MSEs undermined statutory compulsion and defeated the very purpose of the policy.
They further relied on distinctions between Clause 3 and Clause 11 of the policy. Clause 3 mandated overall procurement from MSEs, while Clause 11 reserved specified items exclusively for procurement from them. Petitioners argued that the respondents were obliged to procure electrical items from MSEs under these provisions.
Additionally, the petitioners submitted that the respondents had not complied with an earlier order of the Court directing them to file an affidavit specifying the number of SITs floated in the financial year 2024-25 and the percentage allotted to MSMEs under the policy.
On the other hand, the respondents, represented by government counsel, argued that the petitioners had not participated in the tender process and hence lacked locus standi. They contended that the tenders involved composite contracts of supply, installation, and testing, which could not be bifurcated. They submitted that the Public Procurement Policy was applicable only to procurement of goods and standalone services, not to composite SIT contracts.
The respondents further asserted that these projects were sanctioned under Centrally Sponsored Schemes or the Revamped Distribution Sector Scheme (RDSS), where procurement guidelines were distinct and scheme-specific. They stated that the MSMED Act and Public Procurement Policy did not govern such SIT projects, which required integrated execution involving supply, installation, and testing. Respondents maintained that in such composite contracts, procurement preferences under the MSMED framework were inapplicable.
Respondents also stated that Clause 11 of the policy reserved 358 items exclusively for procurement from MSEs, but such provisions applied only to procurement and not to integrated SIT contracts. They further pointed out that the Ministry of MSME had clarified that Public Procurement Policy did not apply to works contracts involving construction, installation, or commissioning.
Respondents therefore submitted that the interim stay on the tenders caused hardship and delayed critical electrification projects in Kupwara, Kanzalwan, and Tulail.
Justice Wasim Sadiq Nargal recorded that the key issue was whether the Public Procurement Policy for MSEs applied to composite contracts involving supply, installation, and testing. The Court began by examining Section 11 of the MSMED Act, which authorized the Central and State Governments to notify preference policies for procurement from MSEs.
The Court observed: “Section 11 mandates the Central Government and its agencies to promote the procurement of goods and services from Micro and Small Enterprises (MSEs). Specifically, Section 11 empowers the Central Government to notify a scheme for facilitating this public procurement, which culminated in the issuance of S.O. 581(E), dated 23.03.2012, known as the Public Procurement Policy for MSEs.”
It was noted that the policy required that 25% of annual procurement by Central Government Ministries, Departments, and CPSEs be sourced from MSEs. However, the Court stressed that the tenders in question were not mere procurement contracts but composite contracts involving supply, installation, and testing of electrical infrastructure.
The Court stated: “Such SIT contracts do not constitute mere procurement of goods or services in isolation, but involve performance obligations that are dependent on seamless execution of all elements together. In such circumstances, it would be artificial and legally impermissible to bifurcate the contract into ‘goods’ and ‘services’ for the sake of applying procurement preferences under the MSMED framework.”
Referring to jurisprudence, the Court cited Bharat Sanchar Nigam Ltd. v. Union of India, (2006) 3 SCC 1, and Kone Elevator India Pvt. Ltd. v. State of Tamil Nadu, (2014) 7 SCC 1. The Court noted: “The consistent judicial view is that composite contracts are indivisible, and any attempt to dissect them artificially is not tenable in law.” In the Kone Elevator case, the Supreme Court held that contracts for supply and installation of elevators were works contracts in entirety and could not be split.
The Court also referred to administrative clarifications by the Ministry of MSME, which had clarified that the Public Procurement Policy did not apply to works contracts involving construction, installation, or commissioning.
Accordingly, the Court concluded: “The Public Procurement Policy for MSEs under S.O. 581(E), dated 23.03.2012, issued under Section 11 of the MSMED Act, 2006, is not applicable to composite contracts involving Supply, Installation, and Testing (SIT) of electrical infrastructure as these contracts are integrated in nature, and cannot be artificially bifurcated into goods and services to attract procurement preferences which are meant for standalone procurement transactions.”
On the issue of Clauses 3 and 11, the Court stated: “Both clauses explicitly focus on procurement, the act of purchasing goods or services and thus are naturally tailored to contracts which involve straightforward acquisition of goods or standalone services.” Citing Lifecare Innovations Pvt. Ltd. v. Union of India (2025), the Court noted that these clauses imposed institutional obligations but did not confer enforceable rights on individual MSEs with regard to composite contracts.
The Court therefore held: “On a cumulative reading of the statutory provisions, the Policy under S.O. 581(E), and the practical realities of SIT contracts, it is clear that clauses 3 and clause 11 of the policy do not impose a binding obligation to procure all components of SIT contracts exclusively from MSEs.”
On the issue of locus standi, the Court held that the petitioners lacked standing as they had not participated in the tender process. Citing NHAI v. Gwalior-Jhansi Expressway Limited (2018) 8 SCC 243, the Court recorded: “Only the entities who participate in the tender process pursuant to a tender notice can be allowed to make grievances about the non-fulfilment or breach of any of the terms and conditions of the tender documents concerned. The respondent who chose to stay away from the tender process, cannot be heard to whittle down, in any manner, the rights of the eligible bidders who had participated in the tender process.”
The Court observed that the petitioners had neither alleged any discriminatory eligibility condition nor demonstrated mala fides or arbitrariness. Their non-participation disqualified them from claiming to be aggrieved parties.
The Court stated: “A person who has not participated in the tender process lacks the locus standi to challenge the outcome unless they can establish a case of illegality, mala fides, or discriminatory exclusion. In the instant petition the petitioner has neither participated in the process nor shown any bar or condition that precluded such participation.”
The Court ultimately concluded: “In the light of foregoing, the petitioners have failed to present any compelling legal grounds or any factual evidence to substantiate their claims regarding the issuance of the impugned tenders by the respondent. Their assertion lacks the necessary foundation to demonstrate any irregularity or illegality in the tender process, thereby rendering their challenge ill founded, both in terms of law and fact.”
The Court directed that the writ petition be dismissed: “Thus it can be safely concluded that the respondents have acted in accordance with the relevant project-specific procurement guidelines, and there is no statutory obligation to apply the MSE procurement policy in the context of composite SIT tenders for these projects.”
The interim order passed on 13 November 2024 was vacated forthwith. The Court recorded: “The writ petition is, accordingly, dismissed alongwith connected applications. The interim order dated 13.11.2024 is vacated forthwith. As a necessary corollary, the respondents are at liberty to proceed ahead with the tender in question.”
Advocates Representing the Parties
For the Petitioners: Mr. Azhar ul Amin, Senior Advocate with Mr. Hanan Hussain, Advocate
For the Respondents: Mr. Faheem Nissar Shah, Government Advocate; Mr. Nazir Ahmad, Advocate; Mr. Waseem Gul, Government Advocate
Case Title: Zain Electricals & Ors. v. Union Territory of Jammu & Kashmir & Ors.
Case Number: WP(C) 2631/2024, CM(2014/2025), CM(2690/2025), CM(7135/2024), CM(7583/2024)
Bench: Justice Wasim Sadiq Nargal
