Supreme Court of India· 03 January 2023

Can the State award a contract by nomination instead of inviting tenders?

M/s Indian Medicines Pharmaceuticals Corporation Ltd. v. Kerala Ayurvedic Co-Operative Society Ltd. & Ors.

2023 INSC 7 · Civil Appeal No 6693 of 2022

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Answer

Yes, but only where the deviation is neither discriminatory nor arbitrary. Inviting tenders is not a constitutional requirement, yet a government contract involves expenditure out of the public exchequer, so every departure from the tender route has to be justified on the touchstone of Article 14.

Headnote

Constitution of India, 1950 - Art. 14 - National AYUSH Mission, Operational Guidelines - para 4(vi)(b) - Government contracts - Procurement by nomination - Judicial review - Constitution of India, 1950 - Art. 14 - Government contracts - Expenditure from the public exchequer - Held: Money paid under a government contract comes out of the public exchequer, so the State has no absolute discretion over how it is spent. Every government contract must be tested on the touchstone of Article 14. (¶21) Constitution of India, 1950 - Art. 14 - Tender route - Deviation must be justified - Held further: Inviting tenders is not a constitutional requirement, and a contract may be granted by another method. Any deviation from the tender route must be neither discriminatory nor arbitrary, and the justification must comply with Article 14. (¶22) Operational Guidelines, para 4(vi)(b) - National AYUSH Mission - Sources placed on an equal footing - Held further: The word 'or' in paragraph 4(vi)(b) lists IMPCL alongside public sector undertakings, pharmacies under State Governments and co-operatives, all on an equal footing. IMPCL is given no higher standing, and no gradation or monopoly is created. (¶25) Constitution of India, 1950 - Art. 14 - Procurement by nomination - Burden of cogent material - Held further: A State claiming that one unit alone manufactures quality medicines must discharge that burden by cogent material, not by surmises and conjectures. Procurement confined to IMPCL is arbitrary, and tenders must henceforth be invited absent exceptional circumstances. Appeals dismissed. (¶30, 31)

In the Court's own words

Paragraph 21The appellant-State contends that since in the present case, there is no involvement of ‘State largesse’ and no disposal of State property, it was not bound to grant the contract to IMPCL through tender. It is argued that in such a situation, the High Court on a perusal of the relevant material, ought to have only scrutinised if there was an oblique motive involved in purchasing medicines from IMPCL. Government contracts involve expenditure out of the public exchequer. Since they involve payment out of the public exchequer, the moneys expended must not be spent arbitrarily. The State does not have absolute discretion while spending public money. All government actions including government contracts awarded by the State must be tested on the touchstone of Article 14.

Paragraph 22The following principles emerge from the discussion above:

Acts & Sections

Art. 14 Constitution of India, 1950Art. 226 Constitution of India, 1950Art. 136 Constitution of India, 1950

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Also decided in this judgment

Does paragraph 4(vi)(b) of the National AYUSH Mission Guidelines prefer IMPCL over co-operatives?What must a State prove to buy Ayurvedic medicines only from IMPCL?

Plain-language answer prepared by the LexStreak Editorial Desk — verify against the judgment. Source: Supreme Court of India. Corrections