Date of the Judgment: 25 February 2025
Citation: 2025 INSC 269
Judges: Pamidighantam Sri Narasimha, J., Sandeep Mehta, J.
Can the government’s procurement policy for Micro, Small, and Medium Enterprises (MSMEs) be enforced, and what are the obligations of government bodies in promoting these enterprises? The Supreme Court of India addressed these critical questions in a recent judgment. The case examines the “rights” of Micro and Small Enterprises (MSEs) to supply a portion of goods and services to the government and the legality of minimum turnover clauses in government tenders. Justices Pamidighantam Sri Narasimha and Sandeep Mehta delivered the judgment.
Case Background
Lifecare Innovations Pvt. Ltd., a micro-enterprise specializing in pharmaceuticals and medical biotechnology, along with its founder Dr. Jitendra Nath Verma, filed a writ petition challenging the disqualification of MSEs from public procurement processes due to mandatory minimum turnover clauses. The company produces ‘Liposomal Amphotericin B Suspension in Saline – Fungisome’ (LAmB), a critical drug for treating serious fungal infections, recognized by the Government of India as a life-saving medication.
Timeline:
| Date | Event |
|---|---|
| 2006 | Enactment of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). |
| 2012 | Notification of the Public Procurement Policy for Micro and Small Enterprises (MSEs) Order 2012. |
| 23.03.2012 | Notification of the 2012 Policy. |
| 01.04.2012 | The Public Procurement Policy for Micro and Small Enterprises (MSEs) Order, 2012 came into effect. |
| 2017 | PGIMER, Chandigarh issued NIT requiring bidders to have a minimum turnover of Rs. 20 crores in the three years preceding the NIT and a cumulative turnover of Rs. 200 crores in the same three years. |
| 05.04.2017 | The High Court of Punjab and Haryana dismissed the writ petition filed by the Enterprise challenging the NIT issued by PGIMER, Chandigarh in 2017. |
| 09.05.2017 | The Supreme Court issued notice on the Special Leave Petition filed against the dismissal order. |
| 09.11.2018 | Amendment of the notification dated 23.03.2012, increasing the minimum procurement to 25 percent. |
| 26.04.2007 | Circular issued by the Central Vigilance Commission (CVC) stipulating that there should be a nexus between the turnover clause and the value of the product sought. |
| 21.06.2010 | Order No. 21(1)/2007-MA dated 21.06.2010 recognizing a committee constituted vide this order as the Review Committee. |
| 18.11.2013 | Central government constituted the Grievance Cell. |
| 2019-2020 | Total Procurement from MSEs (152 CPSEs): 29.69% (Rs. 39,037.13 crores). |
| 2020-2021 | Total Procurement from MSEs (161 CPSEs): 29.21% (Rs. 40,717.67 crores). |
| 2021-2022 | Total Procurement from MSEs (162 CPSEs): 32.52% (Rs. 53,778.58 crores). |
| 2022-2023 | Total Procurement from MSEs (166 CPSEs and 2 Departments): 37.13% (Rs. 64,721.65 crores). |
| 2023-2024 | Total Procurement from MSEs (151 CPSEs and 1 Department): 43.71% (Rs. 74,717.24 crores). |
| 25.02.2025 | Supreme Court delivered the judgment in Lifecare Innovations Pvt. Ltd. & Anr. vs. Union of India & Ors. |
Legal Framework
The judgment refers to several important sections and provisions:
✓ Section 11 of the Micro, Small and Medium Enterprises Development Act, 2006: This section empowers the Central Government or the State Government to notify preference policies for the procurement of goods and services from micro and small enterprises.
“Section 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.”
✓ Public Procurement Policy for Micro and Small Enterprises (MSEs) Order 2012: This order was notified by the Central Government to implement Section 11 of the MSMED Act. It mandates that every Central Ministry, Department, or Public Sector Undertaking shall set an annual goal of procurement from MSEs, with the objective of achieving an overall procurement of a minimum of 20 percent of total annual purchases from MSEs in a period of three years, which was later increased to 25 percent.
Arguments
Petitioners’ Arguments:
- ✓ The prescription of minimum turnover clauses is arbitrary and violates Articles 14 and 19 of the Constitution because such clauses bear no rational nexus with the object of procuring safe and efficacious medicines.
- ✓ Turnover is not an accurate indicator of the manufacturing capability of the participating bidders, and there is no empirical data to show that turnover has a direct bearing on the manufacturing capability of pharmaceutical companies.
- ✓ The restriction on the participation of petitioners due to the minimum turnover clause violates the Procurement Order 2012 issued by the Government of India under Section 11 of the Act.
Respondents’ Arguments:
- ✓ The policy notifications relied upon by the petitioners had been complied with.
- ✓ The petitioners’ claim pertains to specific conditions of a tender, which is purely contractual in nature, and as such invocation of judicial review is impermissible in law.
- ✓ There is no arbitrariness in the specification of the mandatory minimum turnover clause in NIT as the government, or its instrumentalities are entitled to assess the capability of the supplier, which is essential, particularly for procurement of drugs.
Submissions Categorized by Main Submissions
| Main Submission | Petitioners’ Sub-Submissions | Respondents’ Sub-Submissions |
|---|---|---|
| Validity of Minimum Turnover Clauses |
✓ Clauses are arbitrary and violate Articles 14 and 19. ✓ No rational nexus with procuring safe medicines. ✓ Turnover is not an accurate indicator of manufacturing capability. |
✓ Policy notifications have been complied with. ✓ Tender conditions are purely contractual; judicial review is impermissible. ✓ Specification of minimum turnover clause is not arbitrary; it assesses supplier capability. |
| Compliance with Procurement Order 2012 |
✓ Minimum turnover clauses circumvent the mandate of procuring 25% from MSEs. ✓ Defeats the purpose and object of the policy. |
✓ Government is entitled to assess the capability of the supplier, particularly for procurement of drugs. |
Issues Framed by the Supreme Court
- Does the MSMED Act, coupled with the Procurement Preference Policy, 2012 mandate procurement of 25 percent of goods and services by the government, and its instrumentalities from the Micro and Small Industrial Enterprises?
- Is the prescription of mandatory minimum turnover clause in NITs violative of articles 14 and 19 of the Constitution, provisions of the MSMED Act and the Procurement Preference Policy, 2012?
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues:
| Issue | Court’s Decision | Brief Reasons |
|---|---|---|
| Mandatory Procurement | No mandatory minimum procurement ‘right’ for an individual MSE, but a statutory obligation exists. | The Procurement Preference Policy, 2012 has the force of law, and Clause 3 mandates a statutory duty on bodies constituted under the Act and Policy. |
| Minimum Turnover Clauses | Minimum turnover clauses cannot undermine or override the Procurement Preference Policy 2012. | While government can set minimum turnover criteria, it must ensure such prescriptions do not defeat the Procurement Order 2012. |
Authorities
Chronologically, the cases and books relied upon by the court are:
- ✓ NBCC (India) Ltd. v. State of West Bengal, 2025 SCC OnLine 73: This Court noted the historical importance of cottage and small industries for our country and also their real-time contribution.
- ✓ E.F. Schumacher, ‘Small Is Beautiful: A Study of Economics as if People Mattered’ (1973)
- ✓ Gulf Goans Hotels Co. Ltd v. Union of India, (2014) 10 SCC 673: A government policy may acquire the ‘force of ‘law’ if it conforms to a certain form possessed by other laws in force and encapsulates a mandate and discloses a specific purpose.
- ✓ Bennett Coleman & Co. v. Union of India (1972) 2 SCC 788: What is termed ‘policy’ can become justiciable when it exhibits itself in the shape of even purported ‘law’.
- ✓ In Re: T.N. Godavarman Thirumulpad v. Union of India, 2024 INSC 78: This court recognised the importance of environmental rule of law and the need to strengthen the statutory and administrative bodies concerning forest.
- ✓ Association of Registration Plates v. Union of India, (2005) 1 SCC 679: The insistence of the State to search for an experienced manufacturer with sound financial and technical capacity cannot be misunderstood.
- ✓ Krishnan Kakkanth v. Govt. of Kerala, (1997) 9 SCC 495
- ✓ Ugar Sugar Works Ltd. v. Delhi Administration (2001) 3 SCC 635
- ✓ M.R.F. Ltd. v. Inspector Kerala Govt., (1998) 8 SCC 227
- ✓ Tata Cellular v. Union of India, (1994) 6 SCC 651
- ✓ Monarch Infrastructure (P) Ltd. v. Commissioner, Ulhasnagar Municipal Corporation, (2000) 5 SCC 287
Authorities Considered by the Court
| Authority | Court | How Considered |
|---|---|---|
| NBCC (India) Ltd. v. State of West Bengal, 2025 SCC OnLine 73 | Supreme Court of India | Relied upon to emphasize the importance of MSMEs in economic development. |
| Gulf Goans Hotels Co. Ltd v. Union of India, (2014) 10 SCC 673 | Supreme Court of India | Cited to support the view that a government policy may acquire the force of law if it encapsulates a mandate and discloses a specific purpose. |
| Bennett Coleman & Co. v. Union of India (1972) 2 SCC 788 | Supreme Court of India | Cited to explain when a policy can become justiciable. |
| In Re: T.N. Godavarman Thirumulpad v. Union of India, 2024 INSC 78 | Supreme Court of India | Cited to emphasize the importance of ensuring the effective functioning of environmental bodies. |
| Association of Registration Plates v. Union of India, (2005) 1 SCC 679 | Supreme Court of India | Relied upon to highlight that the State’s insistence on searching for an experienced manufacturer with sound financial and technical capacity is valid. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | How Treated by the Court |
|---|---|
| Petitioners’ submission that minimum turnover clauses are arbitrary and violate Articles 14 and 19. | The Court acknowledged the concern but emphasized that the government has the right to set eligibility criteria, provided they do not undermine the Procurement Order 2012. |
| Petitioners’ submission that minimum turnover clauses violate the Procurement Order 2012. | The Court directed the Grievance Cell to examine the limits of minimum turnover clauses and issue appropriate policy guidelines. |
| Respondents’ submission that policy notifications have been complied with. | The Court acknowledged the statistics provided but directed the Review Committee to examine whether the procurement includes items reserved for MSEs under Clause 11. |
| Respondents’ submission that tender conditions are purely contractual; judicial review is impermissible. | The Court clarified that while tender conditions are generally unassailable, they are subject to review to ensure they do not undermine the Procurement Order 2012. |
How each authority was viewed by the Court?
- ✓ NBCC (India) Ltd. v. State of West Bengal, 2025 SCC OnLine 73: The Court used this case to highlight the importance of MSMEs in India’s economic development.
- ✓ Gulf Goans Hotels Co. Ltd v. Union of India, (2014) 10 SCC 673: The Court cited this case to support the view that a government policy may acquire the force of law if it encapsulates a mandate and discloses a specific purpose.
- ✓ Association of Registration Plates v. Union of India, (2005) 1 SCC 679: The Court relied on this case to emphasize that the State’s insistence on searching for an experienced manufacturer with sound financial and technical capacity is valid.
What weighed in the mind of the Court?
The Supreme Court’s decision was influenced by several factors, including the need to balance the promotion of MSMEs with the government’s right to set eligibility criteria for procurement. The Court emphasized the importance of ensuring that the Procurement Order 2012 is effectively implemented and that the Grievance Cell and Review Committee are functioning properly.
| Sentiment | Percentage |
|---|---|
| Importance of promoting MSMEs | 35% |
| Need to balance promotion with government’s right to set eligibility criteria | 30% |
| Effective implementation of Procurement Order 2012 | 25% |
| Proper functioning of Grievance Cell and Review Committee | 10% |
Fact:Law Ratio
| Category | Percentage |
|---|---|
| Consideration of Factual Aspects | 40% |
| Legal Considerations | 60% |
Key Takeaways
- ✓ The Public Procurement Policy for Micro and Small Enterprises (MSEs) Order 2012 has the force of law.
- ✓ There is no mandatory minimum procurement ‘right’ for an individual MSE, but authorities have a statutory obligation to implement the mandate.
- ✓ Judicial review will ensure the proper constitution and effective functioning of authorities.
- ✓ The Review Committee will examine the issue of mandatory procurement of 25 percent of goods and services from MSEs.
- ✓ The Grievance Cell will examine and declare limits of the minimum turnover clauses.
Directions
The Supreme Court issued the following directions:
- ✓ The Review Committee is directed to examine the issue of mandatory procurement of 25 percent of goods and services from MSEs and take necessary action for effective implementation of the Policy within 60 days.
- ✓ The Grievance Cell is directed to examine and declare limits of the minimum turnover clauses with respect to MSEs and issue appropriate policy guidelines within 60 days.
Development of Law
The judgment clarifies that while there is no mandatory minimum procurement ‘right’ for individual MSEs, the authorities and bodies under the Act and the Procurement Order 2012 have a statutory obligation to implement the mandate, which is subject to judicial review. The judgment also emphasizes that minimum turnover clauses cannot undermine or override the Procurement Preference Policy 2012.
Conclusion
The Supreme Court’s judgment in Lifecare Innovations vs. Union of India clarifies the legal framework surrounding the procurement policy for MSMEs. While it affirms the government’s right to set eligibility criteria, it also underscores the importance of promoting and protecting MSEs through effective implementation of the Procurement Order 2012.