Jammu and Kashmir High Court Upholds Exclusion of MSMED Act from Composite Contracts

Court dismisses appeal by Zain Electricals, affirming that MSMED Act does not apply to SIT contracts under the RDSS Scheme

In a significant ruling, the Jammu and Kashmir High Court has dismissed an appeal by Zain Electricals and others, challenging the applicability of the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, to composite contracts involving Supply, Installation, and Testing (SIT) under the Revamped Distribution Sector Scheme (RDSS). The Division Bench, comprising Chief Justice Arun Palli and Justice Rajnesh Oswal, upheld the decision of the Writ Court, emphasizing that such contracts fall outside the purview of the MSMED Act and the Public Procurement Policy of 2012.

The case arose when Zain Electricals, a micro and small enterprise, contested the legality of three Notices Inviting Tenders (e-NITs) issued for electrification projects in Jammu and Kashmir. The appellants argued that these tenders included items reserved for MSMEs under the Procurement Policy of 2012 and that the government was obligated to procure such items from MSMEs.

However, the High Court reiterated the Writ Court's findings, stating that the e-NITs in question were composite contracts, integral to the RDSS Scheme, which includes supply, installation, and testing. The Court held that the MSMED Act, which focuses on the procurement of goods and services, does not extend to SIT contracts, which are comprehensive and indivisible.

The judgment highlighted that the RDSS guidelines necessitate a turnkey approach, where a single contractor is responsible for all project phases, including quality assurance and inspection. The Court noted that judicial interference in tender conditions is unwarranted unless there is evidence of malice or misuse of statutory powers, aligning with established principles laid down by the Supreme Court.

The decision further clarified that the appellants' non-participation in the tender process due to ineligibility did not affect their locus standi to challenge the e-NITs, but the appeal was dismissed as the contracts had already been awarded and the appellants had not contested this aspect.

This judgment underscores the Court's stance on maintaining the integrity of composite contracts under government schemes and delineates the scope of the MSMED Act concerning such contracts.

Bottom Line:

MSMED Act, 2006 and Public Procurement Policy of 2012 - Applicability to composite contracts involving Supply, Installation, and Testing (SIT) - Held, MSMED Act focuses on procurement of goods and services, while SIT contracts are composite in nature, involving supply, installation, and testing, thus falling outside the purview of MSMED Act and Procurement Policy of 2012.

Statutory provision(s): MSMED Act, 2006, Public Procurement Policy of 2012, Section 11 of the MSMED Act.

Zain Electricals v. Union Territory of J&K, (Jammu And Kashmir)(Srinagar)(DB) : Law Finder Doc Id # 2807925