Misreading Udyam Certificate to Disqualify MSME Bidders is Unlawful: Punjab and Haryana High Court - 2025-01-30

Court Strikes Down FCI Tender Rejection, Reinforcing MSME Procurement Rights

In a significant judgment regarding public procurement transparency, the High Court of Punjab and Haryana has overruled a decision by the Food Corporation of India (FCI) to reject a technical bid on the basis of a perceived failure to submit an Earnest Money Deposit (EMD). The bench, comprising Justice Sureshwar Thakur and Justice Vikas Suri, ruled that the respondent’s reliance on a singular interpretation of the petitioner’s Udyam Registration Certificate (URC) was legally flawed.

The Conflict: A Question of Eligibility

The dispute arose when Rahul Rajput, an operator of a Micro and Small Enterprise (MSE), submitted a bid for an FCI tender. Seeking the benefits afforded to MSEs under the Public Procurement Policy, Rajput claimed an exemption from the payment of an EMD. The FCI, however, rejected his bid, arguing that his Udyam certificate indicated he participated in "trading activities" for the purpose of Priority Sector Lending (PSL). Relying on a ministry clarification from 2012, the FCI maintained that traders are excluded from the purview of the Public Procurement Policy for MSEs, thereby justifying the rejection of the petitioner’s bid for failing to deposit the earnest money.

Arguments on the Table

The petitioner challenged the rejection, asserting that as a registered MSME, he was entitled to the standard exemptions. Conversely, the FCI relied on the judgment in M/s N.G. Projects Limited Vs. M/s Vinod Kumar Jain and others (2022), arguing that courts should be cautious and restrained in interfering with commercial tender processes. The FCI's counsel emphasized that the URC expressly limited the petitioner's activities to "trading," which they argued stripped him of his status as a service provider under the procurement policy.

Judicial Analysis: Seeing the Full Picture

The High Court rejected the FCI’s narrow reading of the certificate. Justice Sureshwar Thakur, writing for the bench, noted that the respondent read the URC in an "isolated manner." While the top of the certificate mentioned trading activities for PSL, the court pointed to specific tables within the document that confirmed the petitioner’s status as a micro-enterprise.

The court clarified that if a document contains conflicting or nuanced information, it cannot be selectively read to penalize a bidder. Because the respondent could not produce evidence suggesting the certificate was obtained through fraud or collusion, the court held that the petitioner was indeed entitled to the benefits afforded to MSEs. Furthermore, the court noted that the petitioner had previously executed similar works on an ad-hoc basis for the FCI, suggesting that the FCI’s own history with the petitioner contradicted their sudden determination of ineligibility.

Key Observations

The court provided incisive commentary on the nature of the tender process:

• "The supra isolated manner of reading of the certificate by the counsel for the respondent, rather has erased the effects of those declarations, thus beneficial to the petitioner, as occur in the apposite table beneath the top of the certificate."
• "Since, as stated supra, the work allotted to the successful bidders, have not yet commenced, therebys, this Court is constrained... to pass a mandamus upon the respondent to scrap the subject tender, thus, for ensuring better competition for all concerned."
• "The discarding of those speakings beneficial to the present petitioner, are not countenanced by this Court."

Final Decision and Implications

Observing that the works awarded to other bidders had not yet commenced, the Court ordered the Food Corporation of India to scrap the subject tender entirely. The court mandated the issuance of a fresh invitation for offers, emphasizing the need for a transparent and competitive environment in public procurement.

This decision stands as a vital reminder to public sector entities that procurement policies must be applied judiciously. By preventing authorities from engaging in "flawed" rejections based on superficial document review, the court upheld the essential protections intended for Micro, Small, and Medium Enterprises, ensuring that legitimate bidders are not unjustly excluded by bureaucratic misinterpretations.