HC rules MSE Procurement policy not mandatory for composite SIT Tenders

15/08/2025

SRINAGAR, Aug 14: In a significant judgment with wide-ranging implications for public procurement practices, the High Court of Jammu and Kashmir and Ladakh at Srinagar has ruled that the Public Procurement Policy for Micro and Small Enterprises (MSEs) is not mandatorily applicable to composite tenders involving Supply, Installation, and Testing (SIT). The ruling came while dismissing a writ petition filed by several Srinagar-based enterprises challenging the exclusion of MSE-specific procurement benefits in large-scale SIT tenders issued by the Kashmir Power Distribution Corporation Limited (KPDCL). The petition was filed jointly by Zain Electricals, Northern Transformers, and North Sun Enterprises through their respective proprietors, represented by Senior Advocate Mr. Azhar ul Amin and Advocate Mr. Hanan Hussain. The respondents included the Union Territory of J and K, KPDCL, and various officials of the Power Corporation, represented by Mr. Faheem Nissar Shah, Mr. Nazir Ahmad, and Mr. Waseem Gul.
The petitioners contended that the government's tendering process failed to comply with provisions under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, particularly Section 11, and the Public Procurement Policy for MSEs, notified vide SO 581(E) dated March 23, 2012. According to the petitioners, the respondents were obligated to reserve a share of the tenders exclusively for MSEs and provide procurement preference as mandated under the said policy and statute.
However, Justice Wasim Sadiq Nargal, while dismissing the writ petition, held that there exists no statutory obligation on the part of government departments or PSUs to apply the MSE procurement policy to composite SIT contracts. These contracts, by their very nature, are integrated packages involving goods, services, and technical works that cannot be artificially split into individual components.
Nature of SIT Contracts Key to Judgment
The Court emphasized that the tenders in question are not limited to mere procurement of goods but include complex installation and testing procedures essential to the functional completion of the project.
"The dominant intention test must be applied," the Court noted, referring to the principle that in contracts with interlinked supply and service obligations, the nature of the entire contract-not its individual components-determines the applicability of procurement policies.
The Court also referenced administrative clarifications issued by the Ministry of MSME, which explicitly state that the Public Procurement Policy does not extend to works contracts or integrated projects where goods and services are bundled together.
Policy Clauses Don't Override Composite Project Design
Addressing the interpretation of Clause 3 and Clause 11 of the Public Procurement Policy-which mandate a 25% procurement quota for MSEs and exclusive reservation of 358 items respectively-the Court ruled that these clauses apply strictly to direct procurement activities.
In support of this view, the Court cited Lifecare Innovations Pvt. Ltd. v. Union of India (2025) and Sterling and Wilson Pvt. Ltd. v. Union of India (2017), both of which upheld that composite works contracts fall outside the purview of the MSE procurement policy.
"These provisions do not create enforceable rights in favor of individual MSEs for each and every contract. The obligation is institutional, requiring compliance with the overall annual procurement targets," Justice Nargal observed.
The Court also stressed that project-specific procurement frameworks-such as those governing Centrally Sponsored Schemes (CSS) like the Revamped Distribution Sector Scheme (RDSS)-take precedence over general policies when the two are in conflict or lack explicit integration.
Petitioner Lacks Locus Standi
One of the critical turning points in the judgment was the issue of locus standi. The Court noted that the petitioners did not participate in the bidding process and failed to demonstrate any illegality, mala fides, or discriminatory clauses that prevented their participation.
"A person who has not participated in the tender process lacks the locus standi to challenge the outcome unless they can establish a case of illegality or discriminatory exclusion," the judgment reads. As there was no bar or exclusionary condition in the tender that directly impacted the petitioners, their challenge was found to be untenable.
Conclusion: Petition Dismissed
In conclusion, the Court held that the respondents acted within the framework of applicable project-specific procurement guidelines and that the petitioners' claims lacked both factual and legal merit. The interim order issued earlier was also vacated.
"The challenge of the petitioner to the impugned Notice Inviting Tender (NIT) is ill-founded and the writ petition, being devoid of merit, is accordingly dismissed," the Court ruled.
This landmark judgment is expected to provide much-needed clarity to public sector units and procurement bodies executing large-scale infrastructure projects, affirming that MSE procurement policies must be interpreted in the context of contract type and project structure, rather than applied indiscriminately.

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