The Supreme Court, on February 25, 2025, issued a significant ruling affirming that the 2012 Procurement Order, issued under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, holds the force of law. The judgment highlights the enforceability of obligations imposed on statutory bodies under this policy while clarifying that individual Micro and Small Enterprises (MSEs) do not hold an absolute right to procurement preference.
The Court ruled that the Procurement Order 2012 is legally binding and has a statutory foundation, making it enforceable by law. It emphasized that authorities implementing this order must function effectively and are subject to judicial scrutiny. Another major aspect of the ruling was the scrutiny of the minimum turnover clause in government tenders, which should not be used to defeat the procurement mandate for MSEs. The Court also reinforced the role of the Review Committee in ensuring compliance with the procurement policy and clarifying the inclusion of 358 items exclusively reserved for MSEs. Additionally, it highlighted the responsibilities of the Grievance Cell in reviewing and addressing arbitrary conditions in tenders that disadvantage MSEs.
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Lifecare Innovations Pvt. Ltd., a Micro Enterprise specializing in pharmaceutical biotechnology, brought this matter before the Court. The petitioner challenged the restrictive procurement policies imposed by government agencies, particularly the minimum turnover requirement that disqualified them from tender participation despite their capability to supply a unique, life-saving drug. The petitioner argued that these requirements violated the MSME Procurement Preference Policy, which mandates 25% procurement from MSEs. Previously, their plea was dismissed by the High Court, leading to this appeal to the Supreme Court.
The Supreme Court examined Section 11 of the MSMED Act, which grants the government authority to create preference policies for MSEs. Under this section, the 2012 Procurement Order mandates that every government department and public sector undertaking procure at least 25% of goods and services from MSEs annually. The policy also reserves 358 specific items exclusively for procurement from MSEs and establishes a Grievance Cell to address unfair tender conditions.
The bench, comprising Justices P.S. Narasimha and Sandeep Mehta, clarified that while individual MSEs do not have a direct right to claim mandatory procurement, the authorities responsible for implementing the policy are bound by legal obligations. The Court stressed that judicial review should focus on compliance with procurement targets and the proper constitution and functioning of bodies like the Review Committee and Grievance Cell. The Court also addressed the issue of minimum turnover clauses, recognizing that while financial and technical criteria are necessary for public safety and efficiency, they must not be used to bypass the Procurement Order 2012.
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The Court directed the Review Committee and Grievance Cell to establish clear guidelines limiting the imposition of such restrictive clauses. To ensure effective execution of the policy, the Supreme Court mandated that the Review Committee must clarify whether the mandatory 25% procurement from MSEs is independent of the 358 reserved items and take necessary action within 60 days. The Grievance Cell was instructed to assess and establish limits on minimum turnover clauses in tenders and issue clear guidelines within 60 days. Furthermore, judicial review should shift toward ensuring that statutory bodies perform their functions effectively rather than micromanaging individual tender disputes.
The Supreme Court’s ruling reinforces the importance of statutory obligations under the MSMED Act and the Procurement Order 2012. By upholding judicial scrutiny over implementing bodies, the Court ensures that the policy serves its intended purpose of promoting MSEs while maintaining procurement standards. This decision strengthens compliance, transparency, and fairer opportunities for small enterprises in government procurement.
Case Name: Lifecare Innovations Pvt Ltd vs Union Of India., WRIT PETITION (C) NO. 1301 OF 2021
