Reserved MSE procurement cannot be bypassed by labelling a tender as a works contract.

A tender styled as a works contract was scrutinised for substance, not label, because it sought to establish an in-house manufacturing unit for a product reserved for micro and small enterprises. The Court noted that Section 11 of the MSMED Act permits preference policies for procurement from MSEs, and the 2012 Public Procurement Policy reserves plastic blow moulded containers up to 20 litre for such procurement. It held that a reserved procurement cannot be avoided by recharacterising it as a works contract where the same product is to be manufactured using the respondent's raw materials and workforce, and found the tender contrary to the statutory procurement mandate.

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Issues: Whether the impugned tender, though styled as a works contract for setting up an in-house manufacturing unit with raw materials supplied by the respondent, ively amounted to procurement of an item reserved for exclusive purchase from micro and small enterprises, thereby violating Section 11 of the Micro, Small and Medium Enterprises Development Act, 2006 and the Public Procurement Policy for Micro and Small Enterprises Order, 2012.

Analysis: Section 11 empowers the Government to notify preference policies for procurement of goods and services from micro and small enterprises. Clause 3 of the 2012 Order mandates procurement targets, and Serial No. 209 in the annexure reserves plastic blow moulded containers upto 20 litre for procurement from micro and small enterprises. The tender was found to be a device to obtain the same reserved product through a different contractual label, because the bidder was to set up and operate the manufacturing unit within the respondent's premises, using the respondent's raw material and workforce of the bidder. The Court held that the policy cannot be defeated by converting reserved procurement into a works contract, and that the decision was contrary to the statutory procurement mandate.

Conclusion: The impugned tender was held to be contrary to the procurement policy and violative of Section 11 of the MSMED Act. The writ petitions were allowed, and the respondents were directed not to extend the tender to non-MSEs and to follow the mandated procurement policy.

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