PGIMER’s Contract Award to Startup MSME for Liquid Medical Oxygen Upheld: Punjab and Haryana High Court Dismisses Challenge

On September 18, 2024, the Punjab and Haryana High Court, in the case of Linde India Limited vs. PGIMER, Chandigarh and Others, dismissed a petition challenging the award of a contract for the supply of Liquid Medical Oxygen (LMO) to a startup MSME. The court held that the relaxation of eligibility criteria for the startup was consistent with public procurement rules and was in the public interest.

In a significant ruling on tender processes and startup exemptions, the Punjab and Haryana High Court reaffirmed the application of Rule 173 of the General Financial Rules (GFR) 2017, which allows relaxation of experience and financial turnover requirements for startups, in line with government policies.

On September 18, 2024, the Punjab and Haryana High Court delivered a notable judgment in Linde India Limited vs. PGIMER, Chandigarh and Others, dismissing a petition that challenged the award of a contract by the Postgraduate Institute of Medical Education and Research (PGIMER) for the supply of Liquid Medical Oxygen (LMO). The petitioner, Linde India Limited, contested the contract award to Respondent No. 5, a startup MSME, alleging non-compliance with the eligibility criteria stipulated in the Notice Inviting Tender (NIT). The court upheld PGIMER's decision, emphasizing that the relaxation of criteria for the startup was lawful under the General Financial Rules (GFR) 2017 and various government directives aimed at promoting MSMEs.

The dispute originated from a tender issued by PGIMER for the procurement of LMO. Linde India Limited, a prominent supplier, raised objections when the contract was awarded to Respondent No. 5, a startup MSME. The petitioner argued that the startup had failed to meet the requisite experience and financial turnover criteria outlined in the NIT. The petitioner had submitted multiple representations to PGIMER, all of which were rejected. Consequently, the petitioner approached the court, seeking to nullify the contract award.

PGIMER defended its decision, stating that the relaxation granted to Respondent No. 5 was permissible under the General Financial Rules (GFR) 2017 and the Public Procurement Policy for Micro and Small Enterprises (MSEs), 2012, as well as subsequent government instructions promoting MSMEs in public procurement. PGIMER also highlighted that the bid from Respondent No. 5 offered significant financial savings and ensured an uninterrupted supply of oxygen, which was critical for the hospital.

The key legal question revolved around whether the relaxation of the tender's eligibility criteria for the startup MSME was valid and in conformity with the applicable rules and government policies.

Relaxation Under GFR 2017: The court reviewed Rule 173 of GFR 2017, which allows the government to relax financial and experience criteria for startups to encourage their participation in public procurement. The court acknowledged that the relaxation of these requirements is in line with the government's broader policy to support MSMEs and startups.

Exemption for MSMEs: The Public Procurement Policy for MSEs, 2012, and the Office Memorandum dated 20.09.2016 issued by the Ministry of Finance were central to the case. These provisions specifically allow MSMEs to benefit from relaxed tender conditions. The court noted that while the NIT inadvertently excluded these exemptions, PGIMER had appropriately granted the relaxation after evaluating the startup’s capacity.

Judicial Review in Contractual Matters: The court reiterated the limited scope of judicial review in contractual matters, emphasizing that courts should not interfere unless there is clear evidence of mala fide intention, arbitrariness, or violation of fundamental rights. Citing precedents such as Jagdish Mandal vs. State of Orissa and Bharat Coking Coal Limited vs. Amr Dev Prabha, the court noted that minor procedural deviations do not warrant judicial interference in the absence of malice or unfairness.

Compliance with Public Procurement Norms: The court held that the relaxation of eligibility criteria for the startup MSME was consistent with Rule 173 of GFR 2017 and the Public Procurement Policy for MSEs. The court emphasized that this relaxation was not arbitrary but grounded in the government’s policy to promote MSMEs and startups in public contracts.

Public Interest Considerations: PGIMER's decision to award the contract to the startup was influenced by public interest factors, such as cost savings and the necessity of ensuring an uninterrupted supply of Liquid Medical Oxygen, which was critical for the hospital. The court noted that this aspect outweighed any technical non-compliance with the original NIT conditions.

Absence of Procedural Malfeasance: The court found no evidence of mala fide intent or arbitrariness in PGIMER's decision-making process. It was determined that the technical committee of PGIMER had properly evaluated the startup's capacity to meet the contract requirements, and no prejudice had been caused to the petitioner due to the relaxation.

Reliance on Precedents: The court cited several precedents, including Agmatel India Pvt. Ltd. vs. Resoursys Telecom and Rajeev Suri vs. Delhi Development Authority, to emphasize that in cases involving government contracts, judicial interference is limited and should only occur in instances of patent illegality or procedural impropriety.

The Punjab and Haryana High Court dismissed the writ petition, upholding PGIMER’s decision to award the contract to Respondent No. 5. The court concluded that the relaxation of the tender's eligibility criteria was lawful and in the public interest, and there was no basis for judicial intervention. The judgment serves as an important precedent on the application of startup exemptions in public procurement and reinforces the principle of limited judicial interference in contractual matters.

Date of decision: September 18, 2024