TaxTMI 
TaxTMI 
2017 (7) TMI 1488
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....igning, constructing, commissioning and operating nuclear and atomic power plans and nuclear power reactors and who awarded the contract to Respondent No. 3 -Technico India Private Limited ("TIPL") which is a company/an enterprise registered under the Micro, Small and Medium Enterprises Development Act, 2006 ("Micro Act"), which carries on the business of manufacturing of parts for manufacturing fire-fighting and fire protection equipment. 3. The basic backgrounds :- "On 26th March, 2012, Public Procurement Policy for Micro and Small Enterprises Order, 2012 (The Policy), published in Official Gazette. Section 6 of the Policy provides that a L-2 MSE bidder will be entitled to match L-1 price bid by a non-MSE bidder and shall be allowed to supply up to 20% of the total tendered value. On 1st April, 2015, the policy issued by Respondent No. 4, is brought into force." 4. Respondent No. 3 is registered with the National Small Industries Corporation ("NSIC") as a MSE (the enterprise). The NSIC Registration has been issued only in respect of Fabricated Hose Cabinet, Y-Strainer, basket Strainer, MS Tank (air vessel), Fabricated MC Point, Nozzle, Deluge Value and Fabricated p....
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....rection, Commissioning, performance guarantee (PG), handing over of Fire water spray system including piping, flanges, manual values, NPCIL approved HILTI make anchor fasteners, electrically operated values (EV), deluge valves assemblies (DV) including its control and instrumentation with fire detectors, Jbs, LCP etc and other specialities, supports, mandatory spares and special tools and tackles, if any, for medium velocity water spray system (MVWS) and Multiple Control Zonal Spray system (MCZs) beyond terminal point, for spray system for its two plants i.e. KAPP-3 & 4 and RAPP - 7 & 8 ("Tender")". There is no issue that above contract is unsplitable and undividable. It is composite contract. 13. On the petition, this Court, on 7th June, 2017 after hearing the parties ordered Respondent No. 2 to postpone issuance of work order till the disposal of this matter. The interim order has been in force till this date. The legal provision and the contention: 14. The definition of 'enterprise' of the Micro Act is reproduced as under: "2 (e) "enterprise" means an industrial undertaking or a business concern or any other establishment, by whatever name called, en....
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.... to supply of such goods, such as, transportation, insurance, installation, commissioning and maintenance. The concept of goods "service" is well recognised. The "subject matter of procurement firm" means any item of procurement wherein the form of goods, services or works or a combination thereof as referred to in office memorandum dated 9th November, 2016 is also no issue. The judgments so cited by the learned Counsel appearing for respondent Nos. 1, 2 and 4 which are settled law on tender and the scope of judicial review in such matter. We are proceeding further by keeping in mind the settled law :- "(1) (2007)1 SCC 477 - Rajasthan Housing Board and Another v. G.S. Investments and Another. "10.......... "11. The Principles which have to be applied in judicial review of administrative decisions, especially those relating to acceptance of tender and award of contract, have been considered in great detail by a three Judge Bench in Tata Cellular v. Union of India. It was observed that the principles of judicial review would apply to the exercise of contractual powers by government bodies in order to prevent arbitrariness or favouritism. ...." (2) ....
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....er passed by the Division Bench (supra). The reliance is also placed by learned Counsel appearing for Respondent No. 2 that a Division Bench of Punjab and Haryana High Court in Central Institute of Plastics Engineering & Technology v. Indian Oil Corporation Limited in Civil Writ Petition No. 8697 of 2015 has also accepted the contention so raised by Respondent No. 2 herein by referring to Clause 16 which reads as under. "16. Even otherwise, the petitioner had responded to the Notice Inviting Tender dated 30.12.2014 and as such, was bound by the terms and conditions contained therein. The purchase as also the price preference in favour of a Micro and Small Enterprise stood enumerated therein. Having participated in the tender process and having remained unsuccessful, it would not be open for the petitioner to now turn around and raise a challenge to any of the terms and conditions contained in the Notice Inviting Tender". 21. The learned Counsel appearing for the Petitioners has strongly relied upon the provisions of the act and referred the terms and conditions of the contract and clauses of policy including the frequently asked questions. The strong reliance is p....
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....t, by legal fiction, is divided into two parts, one for sale of goods, and the other for supply of labour and services; (ii) the concept of "dominant nature test" or, for that matter, the "degree of intention test" or "overwhelming component test" for treating a contract as a works contract is not applicable; (iii) the term "works contract" as used in clause (29-A) of Article 366 of the Constitution takes in its sweep all genre of works contract and is not to be narrowly construed to cover one species of contract to provide for labour and service alone; and (iv) once the characteristics of works contract are met with in a contract entered into between the parties, any additional obligation incorporated in the contract would not change the nature of the contract. 62. ...... "5. ....... Therefore, in judging whether the contract is for a "sale" or for 'work and labour', the essence of the contract or the reality of the transaction as a whole has to be taken into consideration. The predominant object of the contract, the circumstances of the case and the custom of the trade provide a guide in deciding whether transaction is a "sale"....
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....self shows that the contract in question is to design engineering manufacturing, procurement and supply. The scope of the contract definitely falls within the ambit of works contract. 26. Respondent No. 3, admittedly submitted the tender, though being an "enterprise" as contemplated under the Act and claimed all the benefits of related policy claiming which, in view of the specific provision not applicable and an expandable to the nature of work so invited. 27. After considering the above admitted position, and the law, the tender work falls within the ambit of "works contract", Respondent No. 2 could not have awarded the contract to Respondent No. 3. Based upon the so called memorandum/clarification issued by Respondent No. 4. The position of law including Section 2 and Section 11 of Micro Act, makes it clear that the benefit and/or preference required to be given under the Act and policy only on the nature of works falls within the ambit of goods and services which are manufactured and reproduces by the enterprise. The nature of contract should be for sale of goods and such services. The composite nature of contract falls within the ambit of "works contract". Respondent No.....
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....urt order. The reference was made to Afcons Infrastructure Ltd. (Supra), Montecarlo Ltd.(Supra). 30. Therefore, keeping in mind the Supreme Court Judgments (supra) read and referred by the Counsel appearing for Respondents and as those Supreme Court judgments itself makes the position clear that if the Act and/or award of such contract/tender is based upon illegality and/or perversity and arbitrary, there is no bar for judicial review to interfere in such tender matter even at this stage. Undisputedly, present one is a composite contract for supply and installation. There is no separate contract entered into for installation and/or for labour and service and/or for products/goods. This is not a sale of goods/charter simplicitor. 31. To sum up, the provisions of Micro Act and the policy are not applicable to work order. Hence, Respondent No. 2 could not have taken any decision. Therefore, the decision of Respondent No. 2 to award the tender to Respondent No. 3 is arbitrary and illegal. Anuja Prabhudessai, J. 32. I have perused the judgment authored by Mr. Anoop V. Mohta, J. While agreeing with the view and conclusion arrived at by my learned Brother Judge, I prefer to re....
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....o tender is in the realm of contract. Normally speaking, the decision to accept the tender or award the contract is reached by process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts. (5) The Government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides. (6) Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure. [Emphasis supplied] 10. In Air India Limited v. Cochin International Airport Limited [2000 (2) SCC 617], this Court observed: "The award of a contract, whether it is by a private party or by a public body or the State, is essentially a commercial transaction. In arriving at a commercial decision considerations which are....
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....ision is arbitrary, discriminatory or mala fide." 34. In Afcons Infrastructure Ltd. (supra), the Apex Court has held that:- Civil Appeal No. 10143 of 2016. "13... a mere disagreement with the decision making process or the decision of the administrative authority is no reason for a constitutional Court to interfere. The threshold of mala fides, intention to favour some one arbitrariness, irrationality or perversity must be met before the constitutional Court interferes with the decision making process or the decision. ... 15. We may add that the owner or the employer of a project, having authored the tender documents, is the best person to understand and appreciate its requirements and interpret its documents. The Constitutional Courts must defer to this understanding and appreciation of the tender documents, unless there is malafide or perversity in the understanding or appreciation or in the application of the terms of the tender conditions. It is possible that the owner or employer of a project may give an interpretation to the tender documents that is not acceptable to the constitutional courts but that by itself is not a reason for interfering wit....
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....aking extended the benefits under MSMED Act and Public Procurement Policy, 2012 to the MSEs registered under the Act. Clause 15.5 of the tender e Clause of the tender reads thus:- "15.5 Purchase Preference for supply of goods or services as per new Public Procurement Policy for Micro & Small Enterprises (MSEs) under Micro, Small and Medium Enterprises Development Act, 2006 (Subject to meeting qualifying requirement pas per clause 2.0) As per the provisions of MSEs Policy, the participating bidder registered under MSEs Act in a tender of supply of goods or services, quoting price within the band of L1+15% would be allowed to supply a portion of the requirement by bringing down their price to the L1 price, in a situation where L1 price is from someone other than an MSE. Such MSEs would be allowed to supply upto 20% of the total tendered value. In case of more than one such eligible MSE, the supply will be shared proportionately. Further, out of 20% allocation, a sub-target of 4% (i.e. 20% out of 20%) will be earmarked for procurement from MSEs to participate in the tender process or meet the tender requirements and the L1 price, the 4% sub-target for procurement ear....
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....policy framed thereunder are not applicable. The petitioner therefore claims that the decision of Respondent No. 2 to extend the benefit under MSME Act and allot the tender contract to the respondent No. 3 is arbitrary, irrational and illegal. 39. In order to appreciate the controversy, it would be advantageous to refer to the relevant provisions of the MSMED Act, 2006, which has been enacted with an object to provide for facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises. Sections 9 and 11 which are relevant to decide the controversy read thus: "9. Measures for Promotion and Development:. The Central Government may, from time to time, for the purposes of facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises, particularly of the micro and small enterprises, by way of development of skill in the employees, management and entrepreneurs, provisioning for technological upgradation, marketing assistance or infrastructure facilities and cluster development of such enterprises with a view to strengthening backward and forward linkages, specify, by noti....
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.... supply a portion of requirement by bringing down their price to L1 price in a situation where L1 price is from someone other than a Micro and Small Enterprise and such Micro and Small Enterprise shall be allowed to supply upto 20 per cent of total tendered value. (2) In case of more than one such Micro and Small Enterprise, the supply shall be shared proportionately (to tendered quantity)." 41. The learned Counsel for the respondent No. 3 has placed on record the office memorandum as well as the press release dated 12th February, 2015 issued by the Government of India, Ministry of Micro, Small and Medium Enterprises, wherein the word "upto" in clause 6 of the policy are substituted by phrase "at least". The Central Government has thus clarified that there is no embargo on CPSUs to take more than 20% supplies from MSES as per their previous procurement pattern on case to case basis. 42. A plain reading of these provisions clearly indicate that every Central Ministry, Departmental or Public Sector undertaking is under a mandate to procure goods produced and services rendered by the Micro Medium Enterprises. The Central Government has enlisted total 358 items in Append....
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.... particularly Section 11 thereof, only contemplates and brings within its hold contracts for supply of goods and provision of service simplicitor. ... - "7. No provision of the 2006 Act bids us to deconstruct a works contract into elements relating to supply of goods and provision of service. Neither section 11 nor the Public Procurement Policy, 2012 appears to envisage a composite and distinct category of contract such as a work contract actually is." 46. Considering the scope and object of the Act and the relevant provisions under the Act and the Public Procurement Policy, we are of the considered view that the purchase preference is restricted only to "goods and services" provided by MSEs. 47. The next question, which falls for consideration is whether the tender contract issued by the Respondent No. 2 pertains to procurement of Goods and Services within the meaning of the Act or whether it is a work contract and is excluded from the purview of Public Procurement Policy. 48. The term "Goods" has been defined under section 2(f) of the MSMED Act as under: "Goods" means every kind of movable property other than actionable claims and money" 49. The Resp....
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.... into the powers of the Review Committee to accept the definition Goods and Services as provided in the Public Procurement Bill, 2012 for PP Policy. or to consider whether the definition accepted by the Review Committee is in conformity with the specific provision and the object and scope of the parent Act. 51. Now coming to the terms of the tender, from a plain reading of the tender it is evident that the tender was not invited for installing fire extinguishers (wall type), as specified under item No. 117 of the Appendix to the MSMED Act. The tender was invited for- 'Design & Engineering,' Manufacture, Procurement, Supply, seismic qualification/testing, inspection, examination, testing, erection, commissioning, performance guarantee (PG), handing over of Fire water spray system including piping, flanges, manual valves, NPCIL approved HILTI make anchor fasteners, electrically operated valves (EV), Deluge valves assemblies (DV) including its Control and Instrumentation with fire detectors, JBs, LCP etc and other specialties, supports, Mandatory spares and special tools & tackles, if any for Medium Velocity Water Spray System (MVWS) and Multiple Control Zonal Spray System ....
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....on of fire water spray system piping, manual valves, power operated valves, deluge valves, flanges, nozzles, strainers, specialities, sizing and selection of pipe supports. ... b) Minor Engineering- Scope of minor Engineering covers engineering modification of piping near interface piping, at terminal points, modification or re-routing in piping layout its associated piping supports including EP location due to interference with other system components & structures. Routing of small diameter auxiliary piping (less than and including 50 NB) I tubing including supports. It is expected that 10% of the piping supports may need modifications post stress analysis. c) Supply- Scope of supply includes design & manufacture of nozzles, pipes & fittings, valves, flanges, specialties, control panels, Instruments, tubing, structural steel, fasteners, anchor bolts, consumables required for execution of this contract covering all activities from material induction, manufacturing process, quality surveillance, inspection and testing, carrying out and witnessing non-destructive testing and performance testing of nozzles and deluge valve & motorised valves at manufacturer&....
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....or Purchasers approval. Tendered shall carry out all Quality Surveillance activities as per approved QA plans, which will be prepared by vendor based on sample OAP, drawings, data sheets and technical specifications enclosed with the tender. g) Painting- Painting including supply, handling, surface preparation, application of primer and final paint. h) Commissioning of vendor specific systems and equipment- Scope of commissioning & testing include preparation of detailed logical and sequential programme of commissioning activities, commissioning procedures. Commissioning of all the system, structure and equipment to verify the design Intent, preparation of commissioning reports. Carry out any modification required in the system, structure and equipment based on commissioning feedback. .... k) Seismic qualification- Seismic qualification is required for piping, including supports, panels, power operated valves of fire water spray system for the area identified in RAB & CB as per PIO, Power operated valves (Deluge valves assembly & Electrically operated valves with actuator), instruments and panels as specified shall be qualified for seismic loads ....
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.... by the term "works contract" to contract for labour and service only." 55. In Kone Elevators Pvt. Ltd. v. State of Tamil Nadu (2014) 7 SCC 1, the issue before the larger Bench of the Apex Court was whether a contract for manufacture, supply and installation of lifts in a building is a contract for sale of goods or a work contract. The Apex Court upon considering the principles laid down in Larsen & Toubro has held that : "46. At this juncture, it is condign to state that four concepts have clearly emerged. They are: (i) the works contract is an indivisible contract but, by legal fiction, is divided into two parts, one for sale of goods, and the other for supply of labour and services; (ii) the concept of "dominant nature test" or, for that after, the "degree of intention test" or overwhelming component test" for treating a contract as a works contract is not applicable; (iii) the term "works contract" as used in clause (29-A) of Article 366 of the Constitution takes in its sweep all genre of works contract and is not to be narrowly construed to cover one species of contract to provide for labour and service alone; and (iv) once the characteri....
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....r is therefore not in consonance with the provisions of the MSMED Act and the Policy framed thereunder and does not sub-serve the purpose of the Act and the policy. The said clause is therefore illegal, arbitrary and contrary to the provisions of the policy and the Act. In the light of above, the fact that the petitioner No. 1 had not challenged the said clause pales into insignificance, as it is well settled that there is no estoppel against law. Hence, the fact that the petitioner No. 1 had not challenged the condition in the tender would not per se entitle the respondent No. 2 to extend the benefits under MSMED Act and Public Procurement Policy to the respondent No. 3, when the policy itself does not apply to the work contract. 59. It is also pertinent to note that the Petitioner No. 1 was the lowest bidder (L1). He was neither disqualified nor held to be ineligible for any other reason. The Petitioner No. 1 was not awarded the contract mainly because it was not a MSE. The Respondent No. 3 (L2) was allowed to match the price bid of the petitioner No. 1 (L1) solely on the basis of the provisions of MSMED Act and Public Procurement Policy and clause 15.5 of the tender. As state....