On January 3, a Supreme Court division bench comprising of Chief Justice of India (CJI) DY Chandrachud and Justice Hima Kohli reiterated that inviting tenders and holding public auctions are preferred methods of awarding government contracts. The bench did note, however, that if the purpose of the State's allocation is not revenue maximisation, the State could award contracts in other ways as long as they are non-arbitrary and adhere to the requirements of Article 14.

"Government contracts involve expenditure out of the public exchequer. Since they involve payment out of the public exchequer, the monies 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," The Court stated in its decision.

The respondent, in this case, was the Kerala Ayurvedic Co-operative Society Limited, which had previously challenged the said order in the Allahabad High Court. The High Court granted the petition and ordered the State government to purchase Ayurvedic medicines through a transparent process after inviting bids. The State government and IMPCL then filed an appeal with the Supreme Court, challenging the High Court's decision.

The bench's discussion was summarised in the judgement as follows:"Government action must be just, fair and reasonable and in accordance with the principles of Article 14; and 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."

The judgment was passed on a case dealing with an order of the Uttar Pradesh government to purchase Ayurvedic medicines from the petitioner, Indian Medicines Pharmaceuticals Corporation Limited (IMPCL), on a nomination basis without a tender process.

The decision was made in a case involving the Uttar Pradesh government's order to purchase Ayurvedic medicines from the petitioner, Indian Medicines Pharmaceuticals Corporation Limited (IMPCL), on a nomination basis rather than through a tender process.

The Court noted that it has previously held in a number of previous decisions that government contracts must be awarded through a transparent process, and that the process of inviting tenders ensures a level playing field for competing entities. Furthermore, any deviation from the tender process cannot be unreasonable or discriminatory.

The Court also rejected the appellants' contention that IMPCL is the sole manufacturer of high-quality Ayurvedic drugs among the establishments mentioned in paragraph 4(vi)(a). According to the Court, the claim was based solely on assumptions and conjectures, with no solid evidence to back it up.

"The appellant has been unable to discharge the burden placed on it by producing cogent material demonstrating that the procurement of medicines through nomination is warranted because of the existence of exceptional circumstances bearing on 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," the judgment stated.

Case Title: M/S Indian Medicines Pharmaceuticals Corporation Ltd. v Kerala Ayurvedic Co-operative Society Ltd. & Ors.
Citation: Civil Appeal No 6693 of 2022

Link: https://main.sci.gov.in/supremecourt/2019/45236/45236_2019_1_1501_40694_Judgement_03-Jan-2023.pdf