M/S Vishal Pharmaceutical Laboratories Through Its Partner Himanshu Shah vs. The State Of Madhya Pradesh

Held

The Court held that the impugned conditions, specifically Clause 7 and Clause 8 of the tender document, were arbitrary and discriminatory. The Court found that these conditions were not reasonably related to the objective of ensuring quality procurement and unduly restricted competition, thereby acting against public interest. The Court relied on the principle that State actions must be fair and non-arbitrary, as established in Supreme Court judgments like Food Corporation of India v. Kamdhenu Cattle Feed Industries and Union of India v. Tulsiram Patel. The Court noted that while the State has the right to choose its contractors, this discretion must be exercised fairly and without arbitrariness, adhering to the principles of natural justice and Article 14 of the Constitution. The Court quashed the offending clauses and allowed the petitioner to participate in the tender process. The Court also awarded costs of Rs. 10,000/- to the petitioner.

Facts

The petitioner, M/s Vishal Pharmaceutical Laboratories, challenged clauses 7 and 8 of a tender document issued by the Department of Women and Child Development, Government of Madhya Pradesh, for the procurement of 97,329 medical kits. Clause 7 barred distributors, suppliers, and agents from participating, requiring bidders to be manufacturers. Clause 8 mandated that at least 50% of the medical items be manufactured by the Original Equipment Manufacturer (OEM). The petitioner, a licensed manufacturer, was disqualified due to these conditions, which it argued were arbitrary and discriminatory. A representation against these conditions was rejected. The tender was for items including Paracetamol Tablets and Syrup, Zinc Tablets, ORS, and eye ointments.

Key Issues

1. Whether Clause 7 of the tender document, which restricts participation to manufacturers and excludes distributors, suppliers, and agents, is arbitrary, discriminatory, and violative of Articles 14, 19(1)(g), and 301 of the Constitution of India? 2. Whether Clause 8 of the tender document, which mandates that at least 50% of the medical items be manufactured by the Original Equipment Manufacturer (OEM), is arbitrary, discriminatory, and violative of Articles 14, 19(1)(g), and 301 of the Constitution of India? Petitioner's arguments: The impugned clauses are arbitrary, irrational, and designed to favour specific participants, creating an unequal playing field and narrowing competition. The conditions are self-contradictory and impose unreasonable restrictions without a rational nexus to quality procurement. Previous tenders did not have such restrictive conditions. The reliance on the Drug Policy of 2023 is misplaced as it applies to a different department. The conditions violate principles of fairness, transparency, and competition under the Madhya Pradesh Store Purchase and Service Procurement Rules, 2015. Reliance was placed on Supreme Court judgments in Maharashtra Chess Association, Nawal Kishore Sharma, Tata Cellular, Kumari Shrilekha Vidyarthu, and High Court judgments in Gurinder Jit Singh and Shrishti Infrastructure Development. Respondents' arguments: The eligibility conditions are reasonable, necessary, and aimed at ensuring quality assurance, accountability, and traceability for sensitive medical supplies. Clause 7 eliminates intermediaries, and Clause 8 strikes a balance by ensuring substantial manufacturing capability while allowing flexibility for sourcing other items. The Drug Policy of 2023 was referred to.