Government Contracts Must be Ordinarily Awarded Through Tender Process: SC

The Supreme Court in the case Indian Medicines Pharmaceuticals Corporation Ltd vs Kerala Ayurvedic Co Operative Society Ltd observed and has stated that the State does not have absolute discretion while spending public money, the Top Court reiterated that government contracts must be ordinarily awarded through tender process.

The court stated that the process of inviting tenders ensures a level playing field for competing entities, the departure from the tender route must not be discriminatory or unreasonable, the court while finding fault with the State of Uttar Pradesh for giving a purchase order for Ayurvedic medicines without inviting tender. The bench comprising of CJI D Y Chandrachud and Justice Hima Kohli observed that the contracts of government involve expenditure out of the public exchequer. Since they involve payment out of the public exchequer, the money expended must not be spent arbitrarily.

However, the court stated, after referring to precedents that inviting tenders and conducting of the public auctions are considered to be one of the most preferred methods of allocation for two reasons: firstly the procurement can be made at the best price; and secondly, the allocation is through a transparent process. It has further been stated that the purpose of allocation by the State is not revenue maximization, the State can be awarded contracts through other methods as provided it is non-arbitrary and meets the requirements of Article 14 of the Constitution of India. In the present case, a writ petition has been filed by Kerala Ayurvedic Co-operative Society Limited, wherein challenging the order of Allahabad High Court for the purchase of Ayurvedic medicines which are being issued by the State of Uttar Pradesh in favour of Indian Medicines Pharmaceutical Corporation Limited (IMPCL).

Thus, the petition was allowed by the High Court and has directed that the State of Uttar Pradesh must purchase Ayurvedic medicines by adopting a transparent process after inviting tenders. Therefore, the State of Uttar Pradesh and IMPCL approached the Apex Court. In the said appeal, the issue raised was weather in view of paragraph 4(vi)(b) of the Operating Guidelines of the National AYSUH Mission, the State could have pronounced the Ayurvedic drugs solely from IMPCL without inviting tenders ? Further, the court noted that the following principles govern the Government contracts

(i) The action taken by Government must be just, fair and reasonable and in accordance with the principles of Article 14 of the Constitution and

(ii) While the government can deviate from the route of tenders or for public auctions which are for the grant of contracts, the deviation must not be arbitrary or discriminatory. In this case, it has been contended by the State that it deviated from the rule of tender because IMPCL is the only establishment that produces quality medicines. The bench stated while upholding the judgement of High Court, there being no such material to substantiate the claim that IMPCL is the only establishment which manufactures ‘quality’ medicines to the exclusion of other establishments mentioned in paragraph 4(vi)(b).

Thus, the appellant being unable to discharge the burden placed on it by producing cogent material demonstrating that the procurement of medicines through nomination is warranted because of the existence of exceptional circumstances which is bearing on need for quality. The actions taken by the appellants of procuring medicines only from IMPCL to the exclusion of the other establishments mentioned in paragraph 4(vi)(c) is arbitrary and violative of Article 14 of the Constitution of India.