The Division Bench of Justice Dr Dhananjaya Y Chandrachud and Justice Hima Kohli in the case of M/S Indian Medicines Pharmaceuticals Corporation Ltd Vs Kerala Ayurvedic Co-Operative Society Ltd. & Ors held that inviting tenders from the entities is the most transparent and non-arbitrary method of allocation that can be undertaken.
However, the Appellant may deviate from this rule and procure medicines by nomination only if exceptional circumstances exist.
Brief facts:
The factual matrix of the case was that the Uttar Pradesh State AYUSH Society had been purchasing Ayurvedic medicines from the IMPCL (Appellant). The purchase order was awarded to IMPCL without a competitive bidding process. Respondent No.1 is a cooperative society registered under the Kerala Co-operative Societies Act 1969. Under the terms of the Drugs and Cosmetics Rules 1945, Respondent No.1 was given a licence to manufacture Ayurvedic and Unani drugs for sale.
Following that, Respondent No.1 was certified as a Good Manufacturing Practice unit as well. Respondent No.1 requested that the Principal Secretary either place direct purchase orders for the provision of Ayurvedic medicines to it following existing government policy or begin a procurement tender procedure. Respondent No.1 asserted that it was eligible to supply Ayurvedic medicines under NAM and that, as an MSME-registered unit, it was eligible for preferential purchasing under the policy framework.
Thereafter, the writ petition was filed under Article 226 of the Constitution of India by Respondent No.1 challenging the purchase order in favour of IMPCL and seeking a direction for the procurement of Ayurvedic medicines under the National AYUSH Mission Programme by a tender process.
Contentions of the IMPCL:
It was contended that IMPCL was established with the motive to cater to the needs of the Central Government Health Programs and for ensuring the quality of AYUSH medicines. It was submitted that the Government of India issued an order where it had resolved that Ayurvedic medicines cannot be purchased through tenders because :
(a) there is a wide variation in the prices of raw materials required for making drugs and the cost of the drug will vary based on the quality of the raw material used, and (
b) it is not possible to test the exact composition of drugs in terms of the raw materials and their quality.
It was also contended that only when the state intends to dispose of property procurement may be done through tender. Because there was no disposition of state property in this case, the High Court should have just looked at the relevant material to assess if there was an indirect purpose in obtaining drugs from IMPCL. The IMPCL is not a for-profit corporation. When the sale is not on an open market, where the pricing of the medicines was verified by the Department of Expenditure, Ministry of Finance, and the establishment is overseen by officials from the Ministry of AYUSH, there was no room for monopoly.
Contentions of the Respondent No.1:
It was contended that the state of Uttar Pradesh cannot arbitrarily choose one of the qualified entities to acquire pharmaceuticals. All of the institutions described in paragraph 4(vi)(b) of the Operational Guidelines of NAM are considered equal. As a result, procurement must be conducted in a fair manner in which all qualifying enterprises are allowed to secure the purchase order.
It was also submitted that except in extraordinary circumstances due to the nature of the trade or where no viable substitute exists, it is an established principle that state largesse must be awarded by public auction. There were no unusual conditions in this case that require the purchase of drugs only from IMPCL.
Observations of the Court:
It was observed that:
- Government action must be just, fair and reasonable and in accordance with the principles of Article 14 of the Constitution of India; and
- (ii) While the government can deviate from the route of tenders or public auctions for the grant of contracts, the deviation must not be discriminatory or arbitrary. The deviation from the tender route has to be justified and such a justification must comply with the requirements of Article 14 of the Constitution of India.
It was noted that there was no material to substantiate the claim that IMPCL is the only establishment which manufactures ‘quality’ medicines to the exclusion of other establishments mentioned in paragraph 4(vi)(b) of the Operational Guidelines. The Appellant has been unable to discharge the burden placed on it by producing cogent material demonstrating that the procurement of medicines through a nomination is warranted because of the existence of exceptional circumstances bearing on the need for quality. The action of the Appellants of procuring medicines only from IMPCL to the exclusion of the other establishments mentioned in paragraph 4(vi)(c) is arbitrary and violative of Article 14 of the Constitution.
Furthermore, inviting tenders from the entities mentioned in paragraph 4(vi)(b) is the most transparent and non-arbitrary method of allocation that can be undertaken. Hence, the Appellant must henceforth purchase Ayurvedic medicines only through a free and transparent procedure such as tenders. The Appellant may deviate from this rule and procure medicines by nomination only if exceptional circumstances exist. In such a situation, the Appellant must demonstrate the existence of exceptional circumstances based on cogent material.
The decision of the Court:
The Hon’ble Apex Court dismissed the appeals against the judgment of the Lucknow Bench of the High Court of Judicature at Allahabad.
Case Title: M/S Indian Medicines Pharmaceuticals Corporation Ltd Vs Kerala Ayurvedic Co-Operative Society Ltd. & Ors
Citation: 2023 Latest Caselaw 3 SC
Coram: Hon’ble Mr. Justice Dr Dhananjaya Y Chandrachud and Hon’ble Ms. Justice Hima Kohli
Case No: Civil Appeal No 6693 of 2022
Advocate for Appellant: Adv. Vardhman Kaushik
Advocates for Respondents: Advs. Nishe Rajen Shonker, Gurmeet Singh Makker, Vishnu Shankar Jain
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