Director’ in GeM Clause 29 Does Not Mean ‘Independent Director’: Gujarat High Court Sets Aside Technical Disqualification

“Independent Director Occupies a Distinct Statutory Position — Cannot Be Equated with Managing or Executive Director”, In a significant ruling on public procurement jurisprudence, the Gujarat High Court held that the term “Director” in Clause 29 (“One Bid per Bidder”) of the General Terms and Conditions of Government e-Marketplace (GeM) does not include an “Independent Director” within its sweep.

A Division Bench comprising Justice Bhargav D. Karia and Justice L. S. Pirzada quashed the technical disqualification of the petitioner-company, observing that an Independent Director occupies a “different statutory and functional position” under the Companies Act, 2013 and cannot be equated with Managing, Whole-time, or Executive Directors for the purpose of disqualification based on common directorship.

The Court directed the procuring authority to consider the petitioner’s bids along with other bidders in accordance with the tender conditions.

Disqualification for Common Independent Director

The Gujarat State Board of School Textbooks floated five tenders through the GeM portal for procurement of 25,000 MT of printing paper. The petitioner submitted bids in accordance with the tender terms.

During technical scrutiny, the respondent-authority issued a communication stating that one Mr. Kanhaiyalal Chunnilal Chandak was a common Director in the petitioner-company and another bidder, M/s Silverton Industries Limited. Invoking Clause 29 of the GeM General Terms and Conditions — which restricts “One Bid per Bidder” and disqualifies sister/associated/allied concerns having common Directors — the petitioner was called upon to justify why its bid should not be rejected.

The petitioner clarified that Mr. Chandak was merely an Independent Director in both companies, held no shares, had no managerial control, and was neither a promoter nor a Key Managerial Personnel.

Despite the clarification, the respondent disqualified the petitioner’s bids by treating “Director” in Clause 29 as including “Independent Director.”

The writ petition under Article 226 challenged this interpretation.

“Independent Director Is a Special Statutory Category Under Companies Act”

The Court undertook a detailed examination of Sections 2(34), 2(47), 149(6), 149(12) and 150 of the Companies Act, 2013.

It emphasized that Section 149(6) prescribes strict eligibility criteria to ensure independence — absence of pecuniary relationship, absence of promoter connection, absence of managerial role, and lack of substantial shareholding. Section 149(12) further limits the liability of independent directors to acts committed with their knowledge and consent.

The Bench observed that an Independent Director is statutorily prohibited from being a Managing Director or Whole-time Director, and cannot be involved in day-to-day management.

The judgment clearly records that “Independent Director stands on a different foot than the Director whether he is a regular Executive Director, Non-executive Director, Managing Director or Whole-time Director.”

The Court also noted the distinction in appointment procedure, tenure, liability, and governance role, observing that Independent Directors are oversight-centric and not operational decision-makers.

Supreme Court Precedents Reinforce Role-Based Responsibility

The Court relied extensively on Supreme Court precedents such as S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, National Small Industries Corporation Ltd. v. Harmeet Singh Paintal, Sunita Palita v. Panchami Stone Quarry, and K.S. Mehta v. Morgan Securities & Credits Pvt. Ltd.

From these authorities, the Court reiterated that liability depends on actual role in conduct of business, not mere designation.

Quoting the principle that “liability depends on the role one plays in the affairs of a company and not on designation or status alone,” the Bench held that the statutory distinction between Independent Directors and other categories of Directors cannot be ignored while interpreting procurement clauses.

Harmonious Construction of Clause 29 with Clause 24

The Court held that Clause 29 of the GeM GTC must be read harmoniously with Clause 24, which defines “Allied Firms” in the context of effective control and common management.

Clause 24 contemplates entities under common management or where directors/partners have “majority interest” or “controlling voice” through substantial shareholding.

The Bench reasoned that an Independent Director, who neither holds shares nor exercises managerial control, cannot be said to constitute “common management” or “majority interest.”

The Court categorically held that “only because the word ‘Director’ is mentioned in Clause No.29 … it does not mean that it also includes ‘Independent Director’ who has a different role to play in the Board of Directors of the Company.”

It further observed that Clause 29 equates Director with “Key Managerial Personnel” and persons holding more than 10% voting share capital — clearly indicating that the provision targets persons exercising control or managerial authority, not independent oversight directors.

Clarification by Department of Expenditure

During proceedings, GeM sought clarification from the Department of Expenditure (DoE), Ministry of Finance. The DoE responded that the term “Independent Director” does not find mention in the definition of “Allied Firms” under the Manual for Procurement of Goods, 2024, and that Independent Directors may have “different roles and standing/status as compared to regular directors.”

Although the DoE refrained from giving a definitive interpretation, the Court noted that there was no authoritative basis for including Independent Directors within the scope of disqualification under Clause 29.

GeM as Neutral Intermediary

The Court clarified that Respondent No.2 (GeM) merely acts as a neutral digital procurement platform and is not involved in evaluation or disqualification of bids. The impugned decision was solely attributable to the procuring entity.

Judicial Review in Tender Matters

While reiterating judicial restraint in tender matters, the Court held that where disqualification is based on an erroneous interpretation of a tender clause contrary to the statutory framework of the Companies Act, writ interference is justified.

The Bench concluded that disqualification merely because a person was an Independent Director in two companies was legally unsustainable.

The High Court allowed the petition and quashed the disqualification communications dated 12.12.2025.

The respondent-authority was directed to consider the petitioner’s bids along with other bidders in accordance with the tender conditions.

Rule was made absolute. No order as to costs.

The judgment marks an important clarification in procurement law. It recognizes that the statutory framework of the Companies Act must inform interpretation of tender conditions. By excluding Independent Directors from the sweep of “Director” in Clause 29, the Court prevented an overly literal interpretation that would have disqualified entities without any element of common control or cartelisation.

The ruling reinforces that the object of the “One Bid per Bidder” clause is to prevent multiple bids by entities under effective common management — not to penalize companies merely because they share an Independent Director who holds no managerial or financial stake.

Date of Decision: 05 February 2026