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M/s Indian Medicines Pharmaceutical Corporation Ltd. (IMPCL) vs Kerala Ayurvedic Co-operative Society Ltd. & Ors.

Civil Appeal · 2023 INSC 7Decided 3 Jan 2023
Civil Appeal No. 6693 of 2022
Dr. Dhananjaya Y. Chandrachud · Hima Kohli · Hima Kohli as the second judge · P.S. Narasimha as recorded in the listing metadata

Background

Under the National AYUSH Mission, the Central Government gives states grant-in-aid to buy Ayurvedic medicines, and paragraph 4(vi)(b) of the Mission's Operational Guidelines says at least 50% of that money must be spent on medicines from IMPCL (a central public sector company) "or" from other PSUs, state government pharmacies and co-operatives that are GMP-compliant. The Uttar Pradesh State AYUSH Society had been buying all its Ayurvedic medicines only from IMPCL, by direct nomination, without any tender. The Kerala Ayurvedic Co-operative Society, a licensed GMP-certified manufacturer, asked to be considered or for a tender to be held, and when that was ignored it went to the Allahabad High Court (Lucknow Bench), which in October 2019 held the single-vendor practice illegal and directed the State to buy through a transparent tender process. IMPCL and the State of UP appealed to the Supreme Court.

Decision Breakdown

The Court first rejected the idea that welfare-related government spending is mere "largesse" the State may dispense at will: because government contracts spend public money, every such award must satisfy the fairness and non-arbitrariness standard of Article 14. Reviewing its precedents (Ramana Dayaram Shetty, New Horizons, Kamdhenu Cattle Feed, Nagar Nigam vs Al Farheem, the 2G Presidential Reference), it held that while tendering or auction is not a rigid constitutional requirement, it is the preferred route, and any departure from it must be justified as non-arbitrary; exceptions are limited to situations such as emergencies, a genuine single source, or failed auctions. Interpreting paragraph 4(vi)(b), the Court found that the word "or" places IMPCL, other PSUs, state pharmacies and co-operatives on an equal footing, with no gradation or intended monopoly, and that the old 1994 ministry letter favouring IMPCL alone had been superseded by the AYUSH Ministry's January 2019 notification. IMPCL's claim that it is the only maker of quality Ayurvedic medicines was found to rest on "surmises and conjectures" with no supporting material, so buying from IMPCL alone by nomination was arbitrary and violated Article 14. The appeals were dismissed: the State must henceforth procure through a free and transparent process such as tenders, and may resort to nomination only if it demonstrates exceptional circumstances with cogent material. Intervention applications by an MSME manufacturers' federation seeking a guaranteed share for small enterprises were dismissed as beyond the scope of the appeal.

Lesson Learnt

When the government spends public money on contracts, it cannot simply pick a favoured supplier; it must normally hold a transparent tender and may deviate only for exceptional, properly documented reasons. A government-owned company enjoys no automatic preference over other eligible suppliers merely because of its ownership.

Official source (sci.gov.in)View Judgment (PDF)

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