Court Can't Segregate Components Of Contract Merely To Ensure Compliance With MSMED Act & Procurement Policy: Jammu & Kashmir and Ladakh High Court

The Appeals before the High Court were filed by the Appellants, who are Micro and Small Enterprises registered under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).

The Division Bench of Chief Justice Arun Palli and Justice Rajnesh Oswal held, “Even otherwise, it is impermissible for the Court to segregate the various components of the contract in question merely to ensure compliance with the MSMED Act and the Procurement Policy of 2012. The Hon'ble Apex Court has consistently advised that Courts should not interfere with the employer's prerogative in formulating tender conditions and awarding contracts. This right falls within the employer's exclusive domain, barring evidence of malice or misuse of statutory powers.”

Senior Advocate Azhar-Ul-Amin represented the Appellant, while Government Advocate Faheem Nissar Shah represented the Respondent.

Factual Background

Aggrieved by Notices Inviting Tenders(e-NITs), the appellants preferred a writ petition for restraining the third respondent from advertising/allotting the items reserved in terms of the MSMED Act, 2006, read with Public Procurement Policy for Micro and Small Enterprises (MSEs) Order, 2012 (Procurement Policy of 2012) for MSMEs, to the entities other than MSMEs in respect of the impugned e-NITs and for further directing the second respondent to procure 25% of the items other than 358 reserved items from the appellants. The challenge was thrown to the e-NITs on the grounds that in terms of Procurement Policy of 2012 issued by the Central Government in exercise of power conferred by section 11 of the MSMED Act, the Central Government Ministries, Departments, Public Sector Undertakings (PSUs) etc. of the Government needed to procure minimum 25% of their annual value of goods or services from Micro and Small Enterprises.

They emphasized that the impugned e-NITs included significant items, over which the appellants had a statutory right to manufacture and supply in both the areas covered by the Procurement Policy of 2012. The Writ Court dismissed the writ petition preferred by the appellants. Aggrieved thereby, the appellants filed the Letters Patent Appeal. The appellants sought the Writ Court's intervention to scrutinize and segregate the different components of e-NITs so that the respondents could procure the items reserved under the MSMED Act from the appellants, which would have led to the compliance with the MSMED Act and the procurement Policy of 2012.

Reasoning

The Bench explained that the SIT contracts cover supply, installation and testing, and would include the procurement of goods as well, whereas in terms of Section 11 of the MSMED Act, the Central Government or the State Government, as the case may be, may notify the policies in respect of the “procurement of goods and services” produced and provided by Micro and Small Enterprises. To fulfil the legislative intent, the Procurement Policy of 2012 was formulated and implemented, it mentioned.

As per the Bench, the applicability of the MSMED Act, 2006, is focused on the procurement of goods and services. The project under the RDSS (Revamped Distribution Sector Scheme) is structured as a turnkey contract, which by definition requires a single contractor to assume comprehensive responsibility for all phases, from initial design and procurement to final commissioning. It was noticed that the employer's core mandate is the successful delivery of electrification to all remaining unelectrified homes and this scope is intrinsically linked to and necessarily covers the large-scale purchase, supply, and installation of all essential electrical equipment and materials, a composite activity. “In view of the above, we are of the considered opinion that the e-NITs in question are in respect of composite contracts involving supply, installation and testing”, it added.

The Bench further held that the contracts under reference were composite, incorporating supply, installation, and testing as integral components and in severable.

“In view of the foregoing discussion and analysis, we are of the considered opinion that the appellants have failed to establish that the respondents have acted in an arbitrary and capricious manner while issuing the composite eNITs. Rather, we find that the terms and conditions of the e-NITs are in accordance with Revamped Distribution Sector Scheme (RDSS).The arguments advanced by the appellants, drawing a parallel with the Central Government‟s Saubhagya Scheme, constitutes a new plea raised for the first time in this appellate stage”, it stated.

Thus, finding no merit in the petition, the Bench dismissed the same.

Cause Title: Zain Electricals v. Union Territory of J&K (Case No.: LPA No.251/2025 (O&M)

Appearance

Appellant: Senior Advocate Azhar-Ul-Amin, Advocate Hanan Hussain

Respondent: Government Advocate Faheem Nissar Shah, Advocate Nazir Ahmad

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