Introduction

The case of M/S Indian Medicines Pharmaceutical Corporation Limited (IMPCL) v. Kerala Ayurvedic Co-operative Society Ltd. (2023 INSC 7) presents a significant legal discourse on the procurement practices for Ayurvedic medicines under the National AYUSH Mission (NAM). The Supreme Court of India, led by Chief Justice Dr. D.Y. Chandrachud, examined whether the State of Uttar Pradesh could procure Ayurvedic drugs exclusively from IMPCL without adhering to a transparent tendering process, as mandated by the Operational Guidelines of NAM.

Central to this case are the principles of non-arbitrariness under Article 14 of the Constitution, which ensures fairness and equality before the law, especially in government actions involving public expenditure. The petitioner, Kerala Ayurvedic Co-operative Society Limited, challenged the State's unilateral procurement from IMPCL, arguing that it contravened the established guidelines requiring competitive tendering to ensure quality and cost-effectiveness.

Summary of the Judgment

The Supreme Court upheld the High Court's decision, which directed the State of Uttar Pradesh to adopt a transparent tendering process for the procurement of Ayurvedic medicines. The Court emphasized that paragraph 4(vi)(b) of the Operational Guidelines under NAM requires at least 50% of the grant-in-aid to be utilized for procuring medicines from designated establishments, including IMPCL, other Public Sector Undertakings (PSUs), pharmacies under State Governments, and cooperative societies. The State's exclusive procurement from IMPCL without tendering was deemed arbitrary and violative of Article 14.

The judgment reinforced the necessity for fairness and non-arbitrariness in government contracts, underscoring that even in sectors like AYUSH, where specialized knowledge is paramount, adherence to transparent procurement processes is indispensable to prevent monopolistic practices and ensure quality and cost-effectiveness.

Analysis

Precedents Cited

The judgment extensively referenced several landmark cases that have shaped the judiciary's stance on non-arbitrariness in government contracts. Notable among them are:

• Ramana Dayaram Shetty v. International Airport Authority of India: Established that government discretion in contracts is not unfettered and must align with principles of fairness under Article 14.
• New Horizons Limited v. Union of India: Asserted that government contracts should primarily be awarded through transparent tendering processes to maintain public trust and prevent arbitrary decisions.
• Nagar Nigam v. Al Farheem Meat Exporters (P) Ltd.: Reinforced that public contracts should generally be awarded through public tenders unless exceptional circumstances warrant deviation.
• Centre for Public Interest Litigation v. Union of India: Highlighted the arbitrariness of the 'first-cum-first serve' policy in certain allocations, emphasizing that methods of allocation should be scrutinized for fairness.
• Vallianur Iyarkkai Padukappu Maiyam v. Union of India: Discussed scenarios where the State is not obligated to follow tendering processes, primarily in contexts aimed at developmental objectives rather than revenue maximization.

These precedents collectively underscore the judiciary's consistent advocacy for transparency and fairness in public procurement, ensuring that government discretion is exercised within constitutional bounds to prevent arbitrary and monopolistic practices.

Legal Reasoning

The Court's legal reasoning centered on interpreting paragraph 4(vi)(b) of the Operational Guidelines. It determined that this paragraph does not explicitly prioritize IMPCL over other eligible entities but rather places all listed establishments on an equal footing. The key points in the Court's reasoning include:

• The use of the term "or" in paragraph 4(vi)(b) indicates that procurement can be made from any of the specified establishments, without mandating preference for IMPCL.
• The absence of a prescribed method of procurement in the guidelines does not grant unlimited discretion to the State. Instead, any method chosen, including nomination, must align with the principles of fairness and non-arbitrariness under Article 14.
• Historical and governmental communications prior to the 2019 notification, which favored IMPCL, were superseded by the latest guidelines that advocated for competitive tendering to promote quality and cost-effectiveness.
• The Court emphasized that allowing exclusive procurement from IMPCL without tendering could foster monopolistic tendencies, contravening the competitive and transparent allocation intended by the Operational Guidelines.

Additionally, the Court dismissed IMPCL's arguments regarding the uniqueness of its product quality and the impracticality of tendering in the context of Ayurvedic medicines, noting the lack of substantive evidence to support claims of IMPCL's exclusive quality standards.

Impact

This landmark judgment has profound implications for future government procurement practices, particularly within the AYUSH sector. Key impacts include:

• **Strengthened Procurement Framework:** Reinforces the necessity of transparent, competitive tendering processes in government contracts, preventing arbitrary allocations and ensuring value for public expenditure.
• **Equal Opportunity for Vendors:** Ensures that all eligible suppliers, including PSUs, State pharmacies, and cooperative societies, have equal opportunities to compete for government contracts, fostering a more competitive and dynamic market.
• **Judicial Oversight:** Affirms the judiciary's role in scrutinizing government procurement actions to uphold constitutional principles, particularly Article 14, thereby enhancing accountability.
• **Policy Revisions:** May prompt revisitations of existing procurement policies and guidelines to align with judicial interpretations, ensuring that operational practices reflect principles of fairness and non-arbitrariness.

Overall, the judgment sets a precedent that enhances the integrity of public procurement processes, mitigating risks of monopolistic practices and ensuring that public funds are utilized efficiently and transparently.

Complex Concepts Simplified

Article 14 of the Constitution

Article 14 ensures equality before the law and prohibits arbitrary actions by the state. In procurement contexts, it mandates that government actions, including contract awards, must be fair, reasonable, and non-discriminatory.

Operational Guidelines of National AYUSH Mission

The Operational Guidelines provide a framework for the procurement and distribution of AYUSH (Ayurveda, Yoga & Naturopathy, Unani, Siddha, and Homoeopathy) medicines. Paragraph 4(vi) specifically outlines the sources from which medicines can be procured and the thresholds for procurement from specified entities.

Public Sector Undertakings (PSUs)

PSUs are government-owned corporations that operate in various sectors. In the context of this case, PSUs and other designated establishments are eligible suppliers for Ayurvedic medicines, promoting competition and quality assurance.

Good Manufacturing Practices (GMP)

GMP refers to the standards that manufacturers must adhere to ensure the quality, safety, and efficacy of pharmaceutical products. Compliance with GMP is a criterion for eligibility in the procurement guidelines, ensuring that medicines procured meet established quality standards.

Non-Arbitrariness

Non-arbitrariness is a legal principle requiring that state actions be based on rational grounds, free from bias or favoritism. In procurement, this means that contracts must be awarded based on objective criteria rather than subjective preferences.

Conclusion

The Supreme Court's judgment in IMPCL v. Kerala Ayurvedic Co-operative Society Ltd. serves as a pivotal affirmation of the constitutional mandate for fairness and transparency in government procurement. By mandating tendering processes for the procurement of Ayurvedic medicines under the National AYUSH Mission, the Court has underscored the imperative of non-arbitrary state actions, aligning procurement practices with the principles of equality and rationality enshrined in Article 14.

This decision not only curtails monopolistic tendencies but also fosters a competitive environment that can lead to enhanced quality and cost-efficiency in the provision of AYUSH medicines. Moving forward, government entities must diligently adhere to transparent procurement protocols, ensuring that public resources are utilized judiciously and that equitable opportunities are extended to all eligible suppliers.

In the broader legal context, this judgment reinforces the judiciary's role in upholding constitutional principles, ensuring that government actions remain within the bounds of fairness and reasonableness. It sets a robust precedent for future cases involving public procurement, emphasizing that adherence to established guidelines and principles of non-arbitrariness is paramount in maintaining public trust and ensuring effective governance.