Kiran Raj

The Supreme Court has held that the Public Procurement Policy for Micro and Small Enterprises (MSEs) under the Micro, Small and Medium Enterprises Development Act, 2006, has the force of law and is enforceable. The Court recorded that while the policy does not confer an individual enforceable right on MSEs, statutory authorities are under a legally binding obligation to implement its provisions. The Court directed the Review Committee to examine the issue of mandatory procurement of 25 percent of goods and services from MSEs and to clarify whether this requirement is independent of the reserved list of 358 items. Additionally, the Court instructed the Review Committee and the Grievance Cell to evaluate the impact of minimum turnover clauses on MSE participation and issue policy guidelines. The Court ordered that these directives be implemented within sixty days.

The case arose from a writ petition filed by a micro-enterprise engaged in pharmaceutical manufacturing, challenging its repeated disqualification from public procurement processes due to minimum turnover requirements in tender notifications. The petitioner, along with its founder, contended that such clauses prevented small enterprises from participating in tenders issued by the government and its instrumentalities. The petitioner further submitted that these conditions undermined the statutory mandate under Section 11 of the Micro, Small and Medium Enterprises Development Act, 2006, and the Procurement Order 2012, which require a minimum of 25 percent of procurement to be sourced from MSEs. The petitioner sought exemptions from these turnover requirements and, alternatively, the quashing of tender notifications imposing them.

The petitioner submitted that it had been manufacturing a specialized drug used in critical medical treatments and that its exclusion from tenders was solely based on its financial turnover rather than the efficacy or safety of its product. The petitioner argued that turnover criteria were not an accurate measure of a company’s manufacturing capability or product quality and that such requirements disproportionately disadvantaged smaller enterprises. The petitioner relied on the Central Vigilance Commission’s circular dated April 26, 2007, which emphasizes the need for proportionality between turnover requirements and the value of the contract.

The respondent, representing the Union of India, submitted that procurement conditions were determined based on the nature of the goods and the need for financial stability among suppliers. It was argued that minimum turnover clauses were essential to ensure that bidders had sufficient financial resources to fulfill contractual obligations. The respondent further submitted that the government had been complying with the Procurement Order 2012, citing year-wise statistics demonstrating procurement from MSEs exceeding the mandatory threshold. It was contended that the petitioner’s claim pertained to specific tender conditions, which were contractual in nature and not subject to judicial review.

The Court examined the statutory framework governing MSE procurement and the scope of judicial review in such matters. It recorded that “the Procurement Order 2012 has the force of law as it is formulated in exercise of power under Section 11 of the Act and also encapsulates the purpose and object of the Act.” The Court observed that “while there is no mandatory minimum procurement right for an individual MSE, the statutory authorities and administrative bodies under the Procurement Order 2012 are bound by enforceable duties.”

Addressing the issue of procurement obligations, the Court recorded that “Clause 3 of the Procurement Order 2012 mandates that 25 percent of the total procurement by government entities shall be sourced from MSEs.” It further observed that “Clause 11 separately reserves 358 items for exclusive procurement from MSEs, and the interplay between these clauses requires clarification.” The Court noted that while data submitted by the government indicated compliance with the 25 percent mandate, it was unclear whether this figure included procurement from the reserved category under Clause 11.

On the issue of minimum turnover clauses, the Court examined precedents concerning tender eligibility requirements. It referred to Association of Registration Plates v. Union of India, where it was recorded that “tender conditions formulated to assess the capability of a bidder must not be arbitrary, but unless found to be malicious or a misuse of power, they are not unassailable.” The Court noted that while governments have discretion in setting eligibility criteria, “the prescription of minimum turnover clauses must not undermine or override the Procurement Order 2012.” It was recorded that “statutory and executive authorities are bound to implement the procurement preference obligations under the Act and cannot impose conditions that defeat its purpose.”

The Court examined the functioning of the Review Committee and the Grievance Cell established under the Procurement Order 2012. It recorded that “the Review Committee is entrusted with the duty of monitoring procurement compliance and considering exemptions from the 25 percent requirement on a case-by-case basis.” The Court further observed that “the Grievance Cell is specifically tasked with addressing concerns related to procurement conditions that place MSEs at a disadvantage.”

The Court took note of the Comptroller and Auditor General’s findings on the implementation of the Procurement Order 2012. It recorded that “Clause 3(4) requires ministries, departments, and public sector undertakings that fail to meet the 25 percent target to justify their shortfall to the Review Committee, but scrutiny of the Review Committee’s records revealed that entities failing to meet the procurement target had not provided such justifications.” The Court also recorded the CAG’s observations regarding the Grievance Cell, noting that “although 2,253 grievances were received over a five-year period, only three were processed through the Grievance Cell.”

Based on these findings, the Court issued the following directives. It directed the Review Committee to examine whether the 25 percent procurement requirement under Clause 3 operates independently of the reserved list under Clause 11 and to take necessary steps to ensure compliance with the Procurement Order 2012. The Court also directed the Review Committee and the Grievance Cell to assess the impact of minimum turnover clauses and to issue policy guidelines addressing their implications for MSE participation. These directives were required to be implemented within sixty days.

The Supreme Court recorded that judicial review in such matters must focus on ensuring the effective functioning of statutory bodies established under the Act. It was observed that “the first duty of constitutional courts is to ensure that these bodies are in a position to effectively and efficiently perform their obligations.” The Court noted that “the judicial review of administrative action should extend beyond issuing writs of mandamus and examine whether duty bearers are properly constituted and are functioning effectively.”

Case Title: Lifecare Innovations Pvt. Ltd. & Anr. v. Union of India & Ors.
Case Number: 2025 INSC 269 ; Writ Petition (C) No. 1301 of 2021
Bench: Justice Pamidighantam Sri Narasimha and Justice Sandeep Mehta

[Read/Download order]