The judgment clarifies that the MSMED Act's exemptions from Earnest Money Deposit do not cover works contracts, emphasizing a specific interpretation based on prior case law.

JUDGMENT

[ WP(C).2623/2019, WP(C).2632/2019, WP(C).2663/2019, WP(C).2949/2019 ]

Dated this the 22nd day of May 2020

1. These writ petitions are filed seeking directions with regard to award of different works tendered by the 2nd respondent Corporation. It is contended that the petitioners being Micro, Small or Medium Enterprises registered under the Micro, Small and Medium Enterprises Development Act (MSMED Act for short) are entitled to exemption from payment of Earnest Money Deposit and tender fee in terms of the Government Orders in force and that the tenders have been awarded to other tenderers in violation of the Government Orders. It is contended that the petitioners' tenders were rejected only on the ground that they had not submitted the Earnest Money Deposit for the work in question. It is contended that in view of the specific provisions contained in the MSMED Act and the Government Orders issued pursuant thereto, which are produced along with the writ petitions, the rejection of tender of the petitioners was illegal and unsustainable.

2.Counter affidavits have been placed on record by the 2nd respondent Corporation. It is contended that the works in question are construction contracts and come within the category of works contract. It is, therefore, contended that the provisions which permit exemptions of Earnest Money deposits for MSMEDs in respect of procurement of goods and services is not applicable to works contracts. It is submitted that the issue has been pointedly considered by this Court in W.P.(C).No.4923/2017 and it was held that the benefits extended by the Government Orders relied on by the petitioners is for procuring of materials and services. It was held that the exemption claimed by the petitioners is not applicable to works contracts and that the petitioners would therefore not be entitled to any exemption on the basis of the Government Orders relied on. A judgment of a Division Bench of this Court in W.A.No.1358/2017 is also relied on, apart from the judgment of the Division Bench of the High Court of Delhi in W.P.(C).No.7201/2015. It is contended that the question whether the exemption is applicable to works contract is pointedly decided in these cases.

3.Reply affidavits have been placed on record by the petitioners, wherein the contention is that the Micro, Small and Medium Enterprises Development Act , 2006, being an enactment to provide specific benefits to a distinct class of establishments, a purposive interpretation of the provisions thereof is liable to be adopted. It is contended that since exemptions are provided for in the matter of procurement of goods and services, a works contract also being the part of rendering of a service, the petitioners' claim for exemption is to be considered appropriately. Relying on the language of the provisions of the Act as well as the Government order, it is contended that the benefits are to be made available to eligible players is every filed.

4.I have considered the contentions advanced. A Division Bench of the Delhi High Court in judgment dated 02.11.2015 in W.P(C) No.7201/2015 considered the question and held that the exemptions provided to MSMEs are not available in respect of a works contacts, simplicitor. This Court, in the judgment dated 11.4.2017 in W.P.(C).No.18166/2016 held that the exemption claimed by the petitioner is not applicable to works contracts. In W.P.(C).No.360/2018, by judgment dated 5.6.2018, it was held that unless and until there is procurement which is a major incident of the contract, no exemption can be claimed. Relying on the above decisions, this Court in judgment dated 20.08.2019 in W.P(C) No.4923/2017 considered and approved the proposition. A Division Bench of this Court, while upholding a direction issued to grant the benefit to an MSME held in the judgment dated 30.6.2017 in Writ Appeal No.1358/2017 as follows:-

“ An objection was taken that the scheme is in relation to purchase of goods and not services. It must be bor