Government contracts must be awarded transparently through competitive tendering processes, ensuring compliance with principles of fairness and non-arbitrariness under Article 14.

1. This judgment has been divided into the following sections to facilitate analysis:
1. 0 Facts 3
2. 0 Submissions 7
3. 0 Analysis 10
3.1 State Largesse: conflation of power and duty 11
3.2 Judicial review of government contracts: extent and ambit 11
3.2. 1 Tender: a constitutional requirement? 14
3.3 Interpretation of Paragraph 4(vi)(b) of the Operational Guidelines 19
3.4 Validity of award of Government contract to IMPCL 21





The first respondent, Kerala Ayurvedic Co - operative Society Limited, instituted proceedings before the Lucknow Bench of the High Court of Judicature at Allahabad under Art.226 of the Constitution to challenge an order for the purchase of Ayurvedic medicines issued by the State of Uttar Pradesh in favour of Indian Medicines Pharmaceutical Corporation Limited (IMPCL). By a judgment dated 18 October 2019, a Division Bench of the High Court allowed the petition and directed that the State of Uttar Pradesh must purchase Ayurvedic medicines by adopting a transparent process after inviting tenders. The State of Uttar Pradesh and IMPCL instituted proceedings under Art.136 of the Constitution against the judgment of the High Court. The principle issue is whether, in view of paragraph 4(vi)(b) of the Operating Guidelines of the National AYSUH Mission (NAM), the appellant could have procured Ayurvedic drugs solely from IMPCL without inviting tenders.

2. 1. 0 Facts
In September 2014, the Department of AYUSH, Ministry of Health and Family Welfare, Government of India launched NAM, inter alia, to promote the AYUSH medical system and provide cost - effective AYUSH Services. Paragraph 3(ii) of the Operational Guidelines of NAM provides that 75 percent of the admissible assistance will be provided as grant - in - aid by the Central Government while the remaining 25 percent must be met by the States, except in the North - Eastern States where the assistance by the Centre and the States shall be in the ratio of 90: 10.

3. Paragraph 4(vi) provides guidelines for the procurement of Ayurvedic medicines. Paragraph 4(vi)(b) states that 'at least' 50 percent of the grant - in - aid must be used for procuring medicines from IMPCL or Public Sector Undertakings (PSU), pharmacies under State Governments and co - operatives. Paragraph 4(vi) of the Operational Guidelines is extracted below:
(vi) (a) Essential drugs and medicines required for implementation of the Mission will have to be procured from Essential Drugs List (EDL) for Ayurveda, Unani, Siddha and Homeopathy published by Department of AYUSH, Government of India.
(b) At least 50% of the Grant - in - aid provided should be used for procuring medicines from M/s Indian Medicine Pharmaceutical Corporation Limited (a Central Public Sector Undertaking) or from Public Sector undertaking, pharmacies under State Governments and Co - operatives manufacturing units and having Good Manufacturing Practices (GMP) compliance, keeping in view the need for ensuring quality of AYUSH drugs and medicines.
(c) The remaining Grant - in - aid provided under the Mission for purchase of medicines may be use for procuring medicines as per Essential Drugs List (EDL) of Ayurveda, Unani, Siddha and Homeopathy published by Department of AYUSH, Government of India, from other Good Manufacturing Practices (GMP) compliant units having valid manufacturing licenses.
(d) Essential non drug items like dressing items for first aid etc. may be provided out of the amount sanctioned for medicine / essential drugs under different components required for achieving the desired objectives subject to a ceiling of five percent of the total amount sanctioned for the purpose.

4. The Uttar Pradesh State AYUSH Society has been purchasing Ayurvedic medicines from a single vendor, namely IMPCL who is the appellant. The purchase order was given to IMPCL on a nomination basis without conducting a tendering process. The first respondent is a registered co - operative society under the Kerala Co - operative Societies Act 1969. On 2 March 198