Simplified Explanation of the Judgment

In a case concerning public procurement and tender fairness, the Patna High Court recently delivered a significant judgment involving a dispute between a manufacturing company (petitioner) and the Indian Railways (respondents) over the award of a supply contract for Ferro Silicon.

The petitioner, a registered manufacturer and a Micro, Small and Medium Enterprise (MSME), challenged the decision of the Railways for awarding a bulk of the contract to another private company (respondent no.6), despite the petitioner being the lowest bidder (L-1). The issue arose after the petitioner participated in a tender floated by the Rail Wheel Plant (RWP), Bela, a unit of the Ministry of Railways, for the supply of 443030.66 kg of Ferro Silicon.

Previously, the petitioner had successfully fulfilled a developmental order (20% of the tendered quantity) and expected to be upgraded to receive a regular order (80% of the quantity). However, in the subsequent tender process, despite being the lowest bidder, the petitioner was only allotted 10% of the total tender and was again placed under a developmental order. The remaining 90% was granted to the private respondent at a higher price.

The petitioner alleged that this action was arbitrary, in violation of the Central Vigilance Commission (CVC) guidelines and the Public Procurement Policy, especially those relating to MSMEs.

The Railways defended their decision stating that while the petitioner had completed a developmental order, it had not yet been cleared for a regular order under the strict eligibility criteria outlined in the tender. They emphasized that the private respondent was an already approved regular supplier, hence eligible for the bulk order.

Upon reviewing the tender clauses, eligibility requirements, and submissions from both sides, the Court observed:

• The petitioner, although a manufacturer, had not supplied the full tender quantity in a prior single order, which was necessary to qualify for a regular order.
• The Railways had discretion under the Public Procurement Policy to allot up to 20% of the tendered quantity to MSMEs, but had only allotted 10% without sufficient justification.

Thus, while the Court declined to overturn the existing contract or re-award the bulk order (since supplies were already made), it took issue with the Railways’ arbitrary exercise of discretion.

Significance or Implication of the Judgment

This judgment is a vital affirmation of the rights of MSMEs in public tenders. It reasserts that government entities like the Indian Railways must adhere to the spirit of the Public Procurement Policy, particularly the 20% procurement reservation for MSMEs. The decision ensures that discretion must be exercised judiciously, with clear reasons if MSMEs are awarded less than the threshold.

For MSMEs, this judgment reinforces their entitlement to fair consideration and consistent treatment, promoting their growth and integration into government procurement systems. For the government, it signals the need for accountability and transparency in tender processes, especially when smaller enterprises are involved.

Legal Issue(s) Decided and the Court’s Decision

• Whether the petitioner was entitled to a regular order after completing a developmental supply order.
  • Court’s Finding: No. The petitioner did not meet the eligibility criteria under Clause 4(2) of the tender.
• Whether the Railways violated MSME procurement norms by awarding only 10% of the quantity.
  • Court’s Finding: Yes. The Railways failed to provide justifiable reasons for deviating from the 20% allotment to MSMEs.
• Whether the price negotiation process violated CVC guidelines.
  • Court’s Finding: No. The negotiation was permissible since it was conducted with L1 bidders in their respective categories.
• Whether the contract awarded to respondent no.6 should be quashed or altered.
  • Court’s Finding: No. Since supplies were already made, altering the contract was not feasible.
• Directions Given: Future tenders must comply with the MSME procurement policy in both letter and spirit. Any deviation must be properly recorded.

Judgments Referred by Parties

• Haffkine Bio-Pharmaceutical Corporation Ltd. v. Nirlac Chemicals, (2018) 12 SCC 790 — Referred by petitioner.
• R.D. Shetty v. International Airport Authority, (1979) 3 SCC 489 — Cited by Railways.
• Tata Cellular v. Union of India, (1994) 6 SCC 651 — Cited by Railways.

Judgments Relied Upon or Cited by Court

• Haffkine Bio-Pharmaceutical Corporation Ltd. v. Nirlac Chemicals, (2018) 12 SCC 790 — Distinguished and not followed.

Case Title

Surya Alloy Industries Ltd. v. Union of India & Ors.

Case Number

Civil Writ Jurisdiction Case No. 10860 of 2019

Citation(s)

2020 (1) PLJR 135

Coram and Names of Judges

Hon’ble Mr. Justice Rajeev Ranjan Prasad

Names of Advocates and who they appeared for

• For the Petitioner: Mr. Jitendra Singh, Sr. Adv., Mr. Yash Singh, Mr. Kamal Kishor Singh, Mr. Tej Pratap Singh
• For the Railways: Mr. S.D. Sanjay, Addl. S.G., Mr. Ramadhar Shekhar, Ms. Parul Prasad
• For the Private Respondent: Mr. Binod Kumar Singh

Link to Judgment

https://patnahighcourt.gov.in/viewjudgment/MTUjMTA4NjAjMjAxOSMxI04=-ssDzVwfHVPc=

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