Work Contracts do not come under the purview of the Public Procurement Policy, 2012 (PPP-2012) framed under the MSME Act, 2006.

The Gauhati High Court, in M/S Northeast Engineering and Construction vs. Union of India & Anr. [WP(C) 4448/2024], has delivered a significant ruling clarifying the scope of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act) and the Public Procurement Policy, 2012 (PPP-2012). The Court has reiterated that work contracts do not fall within the ambit of PPP-2012, and consequently, Micro and Small Enterprises (MSEs) cannot claim the benefit of exemption from Earnest Money Deposit (EMD) in such contracts.

Facts of the Case

• The petitioner, a Micro and Small Enterprise, participated in a tender dated 16.04.2024 floated by Brahmaputra Cracker and Polymer Ltd. for “Composite Works on Open Domestic Competitive Bidding Basis.”
• As per PPP-2012, MSEs are exempted from depositing EMD in tender processes. The petitioner claimed this benefit and refrained from depositing EMD.
• However, the petitioner’s technical bid was rejected on the ground of non-submission of EMD, leading to the present writ petition before the Gauhati High Court.

Petitioner’s Arguments

• The petitioner argued that being a registered MSE, it was entitled to the exemptions under PPP-2012.
• It was contended that the rejection of its technical bid was arbitrary and contrary to government policy which aims to promote and protect MSEs by easing their participation in public procurement.

Respondents’ Arguments

The respondents, represented by counsels including Mr. S. Mitra , opposed the petition on several grounds:

1. Nature of the Contract – The tender related to a work contract, not mere supply of goods or services. Work contracts, by their very nature, involve a composite arrangement including goods, labour, and services, and thus fall outside the PPP-2012 framework.

2. Government Clarification – The Ministry of MSME, vide communication dated 31.08.2023, had expressly clarified that the benefits of PPP-2012 (like exemption from EMD and free tender documents) would apply to MSEs except in the case of traders and work contracts.

3. Judicial Precedents – Several High Courts have already held that PPP-2012 is inapplicable to work contracts:

   • M/s Shree Gee Enterprise vs. Union of India (Delhi HC, 2015)
   • Sterling and Wilson Pvt. Ltd. vs. Union of India (Bombay HC, 2017)
   • M/s Rahul Singh vs. Union of India (Allahabad HC, 2017)
   • Rashtriya Ispat Nigam Ltd. vs. Union of India (Andhra Pradesh HC, 2022).

4. Estoppel Against Petitioner – The petitioner, with full knowledge that the NIT struck off the exemption clause, still submitted its bid without objection. As per the settled principle, a bidder cannot later challenge tender terms after unsuccessful participation.

5. Non-joinder of Parties – The successful bidder (Bridge and Roof Co. Ltd.) was not impleaded in the case, which itself was a ground for dismissal, relying on Afcons Infrastructure Ltd. vs. Nagpur Metro Rail Corporation Ltd. [(2016) 16 SCC 818].

Court’s Observations

Justice Michael Zothankhuma, after considering arguments, made the following important findings:

1. Scope of PPP-2012
   The policy is confined to procurement of goods produced and services rendered by MSEs. It does not extend to work contracts, which are indivisible and involve a mix of supply and services.

2. Binding Clarification by MSME Ministry
   The Court placed reliance on the Ministry’s letter dated 31.08.2023, which explicitly excluded work contracts from PPP-2012.

3. Judicial Consensus Across High Courts
   Referring to consistent judgments from Delhi, Bombay, Allahabad, and Andhra Pradesh High Courts, the Court held that the issue is no longer res integra – work contracts are outside the PPP-2012 umbrella.

4. Conduct of the Petitioner
   Since the petitioner submitted its bid despite knowing about the non-availability of EMD exemption, it could not turn around and challenge the same after rejection.

5. Judicial Restraint in Tender Matters
   The Court reiterated that tendering authorities are best suited to interpret tender conditions, and courts must defer to them unless mala fides or perversity is shown.

Judgment

The Gauhati High Court held that work contracts do not fall within the purview of PPP-2012, and therefore, the petitioner could not claim EMD exemption. Finding no illegality in the rejection of the technical bid, the Court dismissed the writ petition.

Key Takeaways

1. Work Contracts Excluded – The benefits of PPP-2012, including exemption from EMD, apply only to goods and services and not to work contracts.
2. Clarification by MSME Ministry is Final – The 2023 clarification serves as the governing interpretation of PPP-2012.
3. Bidders’ Responsibility – Participants must carefully read tender conditions before bidding. Silence or inaction at the time of submission prevents them from challenging later.
4. Judicial Precedent Strengthened – With this ruling, Gauhati High Court joins other High Courts in affirming that MSME Act does not cover work contracts.

Conclusion

This ruling provides much-needed clarity for both contracting authorities and MSEs. While the PPP-2012 remains a powerful tool to promote small enterprises in government procurement, its scope is deliberately restricted to goods and services. For composite works contracts, MSEs cannot seek statutory exemptions, and they must comply with standard tender requirements like EMD.

By dismissing the writ petition, the Gauhati High Court has reinforced the principle that statutory exemptions for MSEs cannot be stretched to areas not envisaged by the policy or the MSME Act.

This judgment will serve as a guiding precedent for future disputes in public procurement involving MSEs.