Holding

The procurement of Ayurvedic medicines solely from IMPCL without inviting tenders is arbitrary and violative of Article 14, requiring the contract to be awarded through a transparent tender process.

Summary

The Uttar Pradesh government awarded a contract for Ayurvedic medicines exclusively to Indian Medicines Pharmaceutical Corporation Ltd (IMPCL) without inviting tenders, invoking paragraph 4(vi)(b) of the National AYUSH Mission Operational Guidelines. Kerala Ayurvedic Co‑operative Society challenged the award as arbitrary, alleging violation of Article 14 of the Constitution. The Supreme Court examined the scope of judicial review of government contracts and the requirement that public procurement be non‑arbitrary and transparent. It held that paragraph 4(vi)(b) merely lists eligible suppliers and does not authorize a nomination without competition, and the State must invite tenders unless exceptional circumstances are shown. Since IMPCL failed to demonstrate any such exceptional circumstance, the award was deemed arbitrary and unconstitutional. Consequently, the Court dismissed the appeals and directed that future procurements be made through a fair tender process.

Issues considered

The validity of awarding a government contract to IMPCL without a tender under paragraph 4(vi)(b) of the AYUSH Operational Guidelines.
Whether the State's procurement action violates Article 14 of the Constitution.
Scope of judicial review in government contracts and the necessity of transparency and non‑arbitrariness.

Legislation cited

Subjects

Article 14Government contractsPublic procurementTenderingNon‑arbitrarinessAYUSHConstitutional lawJudicial reviewState largesse

Judgment

[2023] 1 S.C.R. 473 473

M/S INDIAN MEDICINES PHARMACEUTICALS A
CORPORATION LTD
v.
KERALA AYURVEDIC CO OPERATIVE SOCIETY LTD.
& ORS.
(Civil Appeal No 6693 of 2022) B

JANUARY 03, 2023
[DR. DHANANJAYA Y CHANDRACHUD AND
HIMA KOHLI, JJ.]
Constitution of India: Art.14 – Government Contracts – C
Transparent and non-arbitrary method to be adopted by the
Government – Decision of the government regarding purchase of
the Ayurvedic Drugs only from the IMPCL (the appellant) –
Challenged on the ground that selection of IMPCL by the
government is arbitrary and illegal by virtue of Art. 14 – High D
Court held that by virtue of Para 4(vi)(b) of the Operational
Guidelines, the government was to invite supply of the drugs from
various pharmacies and PSU listed therein so as to foster
competition and quality of medicines and the practice adopted by
the government to purchase Ayurvedic drugs only from IMPCL is E
illegal – Aggrieved IMPCL filed instant appeal – Held: Government
Contracts involve expenditure out of the public exchequer, therefore,
the moneys expended must not be spent arbitrarily – The State does
not have absolute discretion while spending public money and,
therefore, all government actions including government contracts F
awarded by the State must be tested on the touchstone of Art.14 –
The government can deviate from the route of tenders or public
auction for the grant of contracts, but such deviation must not be
discriminatory or arbitrary – Deviation from the tender route has
to be justified and such a justification must comply with the
G
requirements of Art. 14 – Administrative Law.

Constitution of India: “Social Welfare” – State Largesse –
Largesse is term used to describe a “generous donation” – Welfare
State aims at realising socio-economic rights which are recognised
H
473
474 SUPREME COURT REPORTS [2023] 1 S.C.R.

A by the Constitution – Social Welfare Benefits provided by the State,
which is a constitutional mandate is commonly understood in the
language of largesse and therefore terming all actions of government
as government largesse results in doctrinal misconception –
Therefore government action targeted for the well-being of citizens
B cannot be termed as largesse as use of such terminology belittles
the sanctity of the social contract that the ‘people of India’ entered
into with the State to protect and safeguard their interests.

Constitution of India: Government Contracts – Judicial
Review – Extent and Ambit – The scope of judicial review in matters
C of government contract is limited – But the government does not
have unlimited discretion in granting the State Largesse and it must
act in fairness – It is a settled proposition of law under Constitution
that the government cannot act arbitrarily while dealing with the
public, whether it is while giving jobs or entering into contracts.
D
Constitution of India: Tender – Constitutional Requirement –
Inviting tenders and conducting public auctions are considered to
be preferred methods of allocation for two reasons – Firstly
procurement can be made at the best price and secondly, allocation
is through a transparent process – However, if the purpose of
E
allocation by the State is not revenue maximization, the State could
award contracts through other methods, provided it is non-arbitrary
and meets the requirements of Art.14.

Dismissing the appeals, the Court
F
HELD: 1. The welfare State plays a crucial role in aiding
the realisation of the socio-economic rights which are recognised
by the Constitution. Social welfare benefits provided by the State
under the rubric of its constitutional obligations are commonly
understood in the language of ‘largesse’, a term used to describe
G a generous donation. Terming all actions of government, ranging
from social security benefits, jobs, occupational licenses, contracts
and use of public resources – as government largesse results in
doctrinal misconceptions. The reason is that this conflates the
State’s power with duty. The Constitution recognises the pursuit
H
M/S IMPCL v. KERALA AYURVEDIC CO OPERATIVE SOCIETY LTD. 475
& ORS.

of the well-being of citizens as a desirable goal. In doing this the A
Constitution entrusts the State with a duty to ensure the well-
being of citizens. Government actions aimed at ensuring the well-
being of citizens cannot be perceived through the lens of a
‘largess’. The use of such terminology belittles the sanctity of
the social contract that the ‘people of India’ entered into with the B
State to protect and safeguard their interests. [Para 11][485-G-
H; 486-A-C]

Ramana Dayaram Shetty v. International Airport
Authority of India 1979 (3) SCC 489 : [1979] 3 SCR
1014; Sterling Computers Ltd. v M/s M & Publications C
Limited, (1993) 1 SCC 445 : [1993] 1 SCR 81; Jesper
I. Slong v. State of Meghalaya (2004) 11 SCC 485;
Association of Registration Plates v. Union of India
(2005) 1 SCC 679:[2004] 6 Suppl. SCR 496; New
Horizons Limited v. Union of India (1995) 1 SCC 478 : D
[1994] 5 Suppl. SCR 310; Food Corporation of India
v. M/s Kamdhenu Cattle Feed Industries (1993) 1 SCC
71 : [1992] 2 Suppl. SCR 322 – relied on.

C.K Achuthan v. State of Kerala AIR 1959 SC 490 :
E
[1959] 1 Suppl. SCR 787 – referred to.

2. Inviting tenders and conducting public auctions are
considered to be preferred methods of allocation for two reasons:
firstly procurement can be made at the best price; and secondly,
allocation is through a transparent process. However, if the F
purpose of allocation by the State is not revenue maximization,
the State could award contracts through other methods, provided
it is non-arbitrary and meets the requirements of Article 14.
Government contracts involve expenditure out of the public
exchequer. Since they involve payment out of the public G
exchequer, the moneys expended must not be spent arbitrarily.
The State does not have absolute discretion while spending public
money. All government actions including government contracts
awarded by the State must be tested on the touchstone of Article
14. The following principles emerge from the discussion : (i)
H
476 SUPREME COURT REPORTS [2023] 1 S.C.R.

A Government action must be just, fair and reasonable and in
accordance with the principles of Article 14; and (ii) While
government can deviate from the route of tenders or public
auctions for the grant of contracts, the deviation must not be
discriminatory or arbitrary. The deviation from the tender route
B has to be justified and such a justification must comply with the
requirements of Article 14. [Paras 20, 21, 22][492-G-H; 493-A-
C-E]

M/s Kasturi Lal Lakshmi Reddy v. State of Jammu and
Kashmir, (1980) 4 SCC 1:[1980] 3 SCR 1338;
C Sachidanand Pandey v. State of West Bengal 1987 (2)
SCC 295 : [1987] 2 SCR 223; Haji T.M Hassam
Rawther v. Kerala Financial Corporation (1988) 1 SCC
166 : [1988] 1 SCR 1079; Centre for Public Interest
Litigation v. Union of India (2012) 3 SCC 1 : [2012] 3
D SCR 147;Natural Resources Allocation, in re Special
Reference No. 1 of 2012 (2012) 10 SCC 1 : [2012] 9
SCR 311; Vallianur Iyarkkai Padukappu Maiyam v.
Union of India (2009) 7 SCC 561 : [2009] 9 SCR 225;
Nagar Nigam v. Al Farheem Meat Exporters (P) Ltd.
E (2006) 13 SCC 382 : [2006] 10 Suppl. SCR 354 – relied
on.

3. There is no material on record to support the submission
that IMPCL is the only establishment among the establishments
mentioned in paragraph 4(vi)(a) that manufacture good quality
F Ayurvedic drugs. In fact, paragraph 4(vi)(b) states that 50 percent
of the grant-in-aid shall be used to purchase medicines from the
units mentioned in the paragraph “keeping in view the need for
ensuring quality of AYUSH drugs and medicines.” This would
indicate that the need for ensuring quality is subserved by all the
G sources mentioned there. Besides IMPCL, which is an
establishment of the Government of India, paragraph 4(vi)(b)
includes other establishments of the State Governments or co-
operative societies. The contention that IMPCL does not have
any commercial interest because it is an establishment developed
H by the Government of India is then equally applicable to other
M/S IMPCL v. KERALA AYURVEDIC CO OPERATIVE SOCIETY LTD. 477
& ORS.

establishments prescribed in paragraph 4(vi)(b). The argument A
that the procurement of Ayurvedic drugs from IMPCL would fall
within the exceptional circumstances (assurance of quality
medicines) is erroneous. The submission of the appellant that
IMPCL is the sole producer of quality Ayurvedic medicines is
based on surmises and conjectures without any cogent material B
to support the claim. In fact, the notification of 2 January 2019
issued by the Ministry of AYUSH stipulates that 50 percent of
the grant-in-aid has to be used to procure medicines from IMPCL
or other Central/State PSUs’ or pharmacies under the State-
Governments and co-operatives. It is open to the appellant to C
procure medicines using any method other than tender, so long
as it is not arbitrary. The claim of the appellant is that it deviated
from the rule of tender because IMPCL is the only establishment
that produces quality medicines. However, there is no material
to substantiate the claim that IMPCL is the only establishment
D
which manufactures ‘quality’ medicines to the exclusion of other
establishments mentioned in paragraph 4(vi)(b). The appellant
has been unable to discharge the burden placed on it by producing
cogent material demonstrating that the procurement of medicines
through nomination is warranted because of the existence of
exceptional circumstances bearing on need for quality. The action E
of the appellants of procuring medicines only from IMPCL to the
exclusion of the other establishments mentioned in paragraph
4(vi)(c) is arbitrary and violative of Article 14 of the Constitution.
[Para 30][498-D-H; 499-A]
F
State of Tamil Nadu v. National South Indian River
Interlinking Agriculturist Association Civil Appeal 6764
of 2021; Caterpillar India Pvt. Ltd. v. Western Coal
Fields (2007) 11 SCC 32 : [2007] 7 SCR 251 – relied
on.
G
Case Law Reference

[1959] 1 Suppl. SCR 787 referred to Para 13

[1979] 3 SCR 1014 relied on Para 14
H
478 SUPREME COURT REPORTS [2023] 1 S.C.R.

A [1993] 1 SCR 81 relied on Para 14

(2004) 11 SCC 485 relied on Para 14

[2004] 6 Suppl. SCR 496 relied on Para 14

B [1994] 5 Suppl. SCR 310 relied on Para 14

[1992] 2 Suppl. SCR 322 relied on Para 15

[1980] 3 SCR 1338 relied on Para 16

[1987] 2 SCR 223 relied on Para 16
C
[1988] 1 SCR 1079 relied on Para 16

[2012] 3 SCR 147 relied on Para 16

[2012] 9 SCR 311 relied on Para 17
D
[2009] 9 SCR 225 relied on Para 18

[2006] 10 Suppl. SCR 354 relied on Para 19

[2007] 7 SCR 251 relied on Para 30
E CIVIL APPELLATE JURISDICTION : Civil Appeal No.6693
of 2022.

From the Judgment and Order dated 18.10.2019 of the High Court
of Judicature at Allahabad, Lucknow Bench at Lucknow in Writ Petition
No.1364 of 2019.
F
With

Civil Appeal No. 6694 of 2022.

Ms. Garima Prasad, AAG, Siddharth Bhatnagar, Sr. Adv., Naresh
G Kaushik, Vardhman Kaushik , Manoj Joshi, Yogesh Yadav, Vishnu
Shankar Jain, Kaleeswaram Raj, Ms. Thulasi K. Raj, Mrs. Anu K. Joy,
Alim Anvar, Nishe Rajen Shonker, Siddhant Kohli, Ms. Suhasini Sen,
Ms. Swarupama Chaturvedi, Udai Khanna, Anmol Chandan, Gurmeet
Singh Makker, Ms. Pallavi Pratap, Ms. Pracheta Kar, Nadeem Afroz,
H Aditya Sidhra, Advs. for the appearing parties.
M/S IMPCL v. KERALA AYURVEDIC CO OPERATIVE SOCIETY LTD. 479
& ORS.

The Judgment of the Court was delivered by A
DR. DHANANJAYA Y CHANDRACHUD, CJI
This judgment has been divided into the following sections
to facilitate analysis:

B

C

D

1. The first respondent, Kerala Ayurvedic Co-operative Society
Limited, instituted proceedings before the Lucknow Bench of the High
Court of Judicature at Allahabad under Article 226 of the Constitution to
challenge an order for the purchase of Ayurvedic medicines issued by E
the State of Uttar Pradesh in favour of Indian Medicines Pharmaceutical
Corporation Limited1. 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
F
and IMPCL instituted proceedings under Article 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 Mission2, the appellant could have procured Ayurvedic drugs
solely from IMPCL without inviting tenders.
1.0 Facts G
2. 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
1
"IMPCL”
2
"NAM”
*Ed. Note: Pagination is as per the original judgment.
H
480 SUPREME COURT REPORTS [2023] 1 S.C.R.

A 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.
B 3. Paragraph 4(vi) provides guidelines for the procurement of
Ayurvedic medicines. Paragraph 4(vi)(b) states that ‘atleast’ 50 percent
of the grant-in-aid must be used for procuring medicines from IMPCL
or Public Sector Undertakings3, pharmacies under State Governments
and co-operatives. Paragraph 4(vi) of the Operational Guidelinesis
extracted below:
C
“(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
D 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
E 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)
F
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
G 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
3
H "PSU”
M/S IMPCL v. KERALA AYURVEDIC CO OPERATIVE SOCIETY LTD. 481
& ORS. [DR. DHANANJAYA Y CHANDRACHUD, CJI]

basis without conducting a tendering process. The first respondent is a A
registered co-operative society under the Kerala Co-operative Societies
Act 1969. On 2 March 1985, the first respondent was granted a licence
to manufacture Ayurvedic and Unani drugs for sale under the provisions
of the Drugs and Cosmetics Rules 1945. On 31 August 2016, the first
respondent was also certified as a Good Manufacturing Practice 4 unit.
B
5. On 30 October 2017, the first respondent made a representation
to the Principal Secretary to either place direct purchase orders for the
supply of Ayurvedic medicines to it according to the existing government
policy or to initiate a tender process for the purchase. The first respondent
stated that it is eligible to supply Ayurvedic medicines under NAM and
that as an MSME registered unit, it is eligible under the policy framework C
for preferential purchase.A similar representation was made on 21
December 2018 to the Mission Director.
6. The first respondent instituted a petition under Article 226 of
the Constitution apprehending thata purchase order for 2019-20 was
going to be issued to IMPCL. The first respondent challenged the purchase D
order in favour of IMPCL and sought a direction for the procurement of
Ayurvedic medicines under the National AYUSH Mission Programme
by a tender process.
7. The High Court held that the ‘practice adopted by the
respondents, to purchase Ayurvedic drugs, only from IMPCL’ is illegal. E
The High Court held that under paragraph 4 of the Operational Guidelines,
the appellant must invite tenders from prescribed establishments to
purchase Ayurvedic medicines. The appellant was allowed to purchase
drugs from IMPCL to the extent of the payment already made since for
the year 2019-20,the purchase order for medicines to the extent of 50
percent had already been given to IMPCL and a full payment of Rupees F
11 crores was made. The appellant was directed to invite tenders for
competitive rates and quality of drugs for the remaining supplies. The
High Court held that:
(i) Paragraph 4 of the Operational Guidelines provides the
‘sources’ for the procurement of Ayurvedic drugs and G
medicines;
(ii) Paragraph 4(vi)(b) provides that 50 percent of the grant-
in-aid shall be used to purchase Ayurvedic medicines from
4
"GMP” H
482 SUPREME COURT REPORTS [2023] 1 S.C.R.

A IMPCL or other PSUs and pharmacies under the State
Governments and cooperative societies;
(iii) Invitation from pharmacies and PSUs under the State
Governments or cooperative societies will foster competition
on rates and quality of medicines;
B (iv) The Memorandum issued by the Government of India on 8
May 2008 stipulates that in the absence of “fully developed
Pharmaceutical standards for Ayurvedic and Unani
medicines in the country, the Central Government Health
Scheme Research Councils is/are not fully equipped to
C ensure that the purchased medicines are of right quality.”
Paragraph 4(vi)(b) emphasises the quality of medicines.
There is nothing on the record to show that IMPCL is the
only entity producing quality drugs;
(v) No comparison on the quality ofmedicines can be made
D unless tenders are invited from IMPCL and other PSU
Pharmacies under the State Governments and co-operative
societies;and
(vi) Atleast 50 percent of the grant-in-aid forthe procurement
of Ayurvedic medicines must be used only after tendersare
E invited amongst the establishments referred to in paragraph
4(vi)(b) of the OperationalGuidelines. The remaining grant-
in-aid, if any, shall be used to procure drugs in the manner
specified in paragraph 4(vi)(c).
2.0 Submissions
F 8. Mr Naresh Kaushik, counsel appearing for IMPCL urged the
following submissions:
(i) The Government of India holds 98.11 percent of the shares
of IMPCL and 1.89 percent of the shares are held by the
Governmentof Uttarakhand through Kumaon Mandal Vikas
G Nigam Limited. IMPCL has been established to cater to
the needs of the Central Government Health Programs and
for ensuring the quality of AYUSH medicines;
(ii) Due to the unique organizational set-up of IMPCL, it is
most suited to supply quality medicines at an affordable
H price. The prices of the medicines manufactured by IMPCL
M/S IMPCL v. KERALA AYURVEDIC CO OPERATIVE SOCIETY LTD. 483
& ORS. [DR. DHANANJAYA Y CHANDRACHUD, CJI]

are vetted by the Union Ministry of Finance from time to A
time. The procurement of medicines from other
organizations is alsoat the rates of IMPCL as these rates
are considered the best possible rates. Further, IMPCL is
the only government manufacturing company for Ayurvedic
medicines with its own certified drug testing laboratory;
B
(iii) On 16 July 1994, the Government of India issued an order
where it had resolved that Ayurvedic medicines cannot be
purchased through tenders because (a) there is a wide
variation in the prices of raw materials required for making
drugs and the cost of the drug will vary based on the quality
of the raw material used; and (b) it is not possible to test C
the exact composition of drugs in terms of the raw materials
and their quality;
(iv) The Ministry of AYUSH, Government of India has on
various occasions recommended purchasing Ayurvedic
medicines directly from IMPCL; D

(v) Procurement may be through tender only where the state
proposes to dispose of property. Since in this case, there is
no disposal of state property, the High Court should have
only looked at the relevant material to determine whether
an oblique motive is involved in purchasing medicines from E
IMPCL;
(vi) IMPCL is not a private enterprise. There is no scope for
monopoly when the sale is not in an open market, where
the prices of the medicines are vetted by the Department
of Expenditure, Ministry of Finance, and the establishment F
is managed by the officials of the Ministry of AYUSH;
(vii) Paragraph 4(vi)(b) of the Operational Guidelines
distinguishes IMPCL from other PSUs, pharmacies under
the State Government, and cooperative societies by the use
of the term “or”. Paragraph 4(vi)(b) emphasises ensuring G
the quality of AYUSH drugs and medicines. The phrase
‘atleast’ in paragraph 4(vi)(b) only provides a minimum
benchmark for procurement and does not prescribe an upper
limit; and
H
484 SUPREME COURT REPORTS [2023] 1 S.C.R.

A (viii) A combined reading of paragraphs 4(vi)(b) and 4(vi)(c)
elucidates that the states have the discretion to procure
medicines from IMPCL or any other PSUs, and pharmacies
under the State Government and cooperatives. The budget,
if any, that is remaining after purchasing medicines from
the establishments mentioned in paragraph 4(vi)(b) may be
B
utilized for purchasing medicines from other GMP-compliant
establishments.
9. Mr Kaleeswaram Raj, counsel appearing for the first respondent
urged the following submissions:
C (i) Paragraph 4(vi) only depicts the establishments from which
the medicines can be procured- i.e the whom question and
not the how question:
(a) Paragraph 4(vi)(b) of the Operational Guidelines
stipulates the establishments from whichat least 50
D percent of the medicines must be procured. The
usage of the term ‘or ’ indicates that all
establishments mentioned in the paragraph are equally
eligible to supply medicines as much as IMPCL; and
(b) While paragraph 4(vi)(b) does not stipulate that the
E procurement must be through a tender process, it
does not mean that the process of tender cannot be
read into the provision. If paragraph 4(vi)(b) is
interpreted to allow procurement from any of the
establishments mentioned without a tendering
process, the same interpretation would also be
F applicable to paragraph 4(vi)(c). Also, this would mean
that even for procurement from private entities, there
is no requirement of conducting a tender process.
(ii) The State of UP cannot arbitrarily prefer one of the eligible
entities for the procurement of medicines. All the
G establishments mentioned in paragraph 4(vi)(b) are
recognised to be on an equal footing. Therefore,
procurement must be by a fair process in which all the
eligible establishments are granted an opportunity to secure
the procurement order;
H
M/S IMPCL v. KERALA AYURVEDIC CO OPERATIVE SOCIETY LTD. 485
& ORS. [DR. DHANANJAYA Y CHANDRACHUD, CJI]

(iii) It is an established principle that state largesse must be A
distributed by public auction save in exceptional situations
having regard to the nature of thetrade or where no
reasonable substitute exists. There are no exceptional
circumstances in the instant case that warrant the
procurement of medicines only from IMPCL;and
B
(iv) The price of medicines procured from IMPCL is vetted by
the Department od Expenditure, Ministry of Financefor the
limited purpose of undertaking an audit. It is the National
Pharmaceutical Pricing Authority that approves the prices
of medicines. The Ministry of Finance does not have the
power or the expertise to determine the prices of Ayurvedic C
medicines.
3.0 Analysis
10. Paragraph 4(vi)(b) of the Operational Guidelines prescribes
that at least 50 percent of the grant-in-aid shall be used to procure D
medicines from (i) IMPCL, or (ii) PSUs and pharmacies under the State
Governments and cooperatives. The provision further indicatesthat to
ensure the quality of AYUSH drugs and medicines, the medicines must
be manufactured in their manufacturing units which comply with Good
Manufacturing Practices (GMP). Paragraph 4(vi)(c) states that the
remaining grant-in-aid may be used for procuring medicines from other E
Good Manufacturing Practices (GMP) compliant units having valid
manufacturing licenses. The appellant had granted the contract for the
purchase of Ayurvedic medicines to IMPCL under paragraph 4(vi)(b)
of the Operational Guidelines through nomination, thereby eliminating
the other units mentioned in the paragraph. This action of the appellant F
is challenged as arbitrary and violative of Article 14. Before interpreting
paragraph 4(vi)(b) to determine if the action of the appellant is permissible
under the law, the law relating to the extent of judicial review of
government contracts must be discussed.
3.1 State Largesse: conflation of power and duty G
11. The welfare State plays a crucial role in aiding the realisation
of the socio-economic rightswhich are recognised by the Constitution.
Social welfare benefitsprovided by the State under the rubric of its
constitutional obligations are commonly understood in the language of
‘largesse’, a term used to describe a generous donation.Terming all actions
H
486 SUPREME COURT REPORTS [2023] 1 S.C.R.

A of government, ranging from social security benefits, jobs, occupational
licenses, contracts and use of public resources – as government largesse
results in doctrinal misconceptions. The reason is that this conflates the
State’s power with duty. The Constitution recognises the pursuit of the
well-being of citizens as a desirable goal. In doing this the Constitution
entrusts the State with a duty to ensure the well-being of citizens.
B
Government actions aimed at ensuring the well-being of citizens cannot
be perceived through the lens of a ‘largess’. The use of such terminology
be littles the sanctity of the social contract that the ‘people of India’
entered into with the State to protect and safeguard their interests.
3.2 Judicial review of government contracts: extent and
C ambit
12. Paragraph 4(vi)(b) prescribes entities from which Ayurvedic
medicines may be procured. The paragraph does not prescribe the method
through which they may be procured. The appellant contends that the
since the method of procurement is not prescribed, it has the discretion
D to purchase drugs through ‘nomination’. On the other hand, the
respondent contends that merely because the Operational Guidelines do
not prescribe the method of procurement, unbridled discretion cannot be
given to the executive to procuredrugs through ‘nomination’.
13. In the early 1950s’, judicial review of the process of concluding
E contracts by government was limited. The courts allowed the State due
deference on the ground of governmental policy. In C.K Achuthan v.
State of Kerala5, a Constitution Bench of this Court held that it is open
to the Government ‘to choose a person to their liking, to fulfil contracts
which they wish to be performed.’ The Court observed that when one
F party is chosen over another, the aggrieved party cannot claim the
protection of Article 14 since the government has the discretion to choose
with whom it will contract.
14. Over the years, this Court has applied the non-arbitrariness
standard under Article 14 to test the validity of government action. In
G Ramana Dayaram Shetty v. International Airport Authority of
India6, a three-Judge Bench of this Court observed that the government
does not have unlimited discretion in granting State largesse and it must
5
AIR 1959 SC 490
6
1979( 3 )SCC 489; Also see Sterling Computers Ltd. v M/s M& Publications Limited,
(1993) 1 SCC 445; Jesper I. Slong v. State of Meghalaya, (2004) 11 SCC 485; Also see
H Association of Registration Plates v. Union of India, (2005) 1 SCC 679
M/S IMPCL v. KERALA AYURVEDIC CO OPERATIVE SOCIETY LTD. 487
& ORS. [DR. DHANANJAYA Y CHANDRACHUD, CJI]

act in fairness.In New Horizons Limited v. Union of India7, the A
Department of Telecommunications, invited sealed tenders for printing,
binding, and supply of telephone directories. While determining the validity
of the eligibility criteria prescribed for tenderers, the Court observed
that the State when entering into a contract does not stand on the same
footing as a private person. The Court held that the government cannot
B
act arbitrarily while dealing with the public, whether it is while giving
jobs or entering into contracts. The relevant observations are extracted
below:
17. At the outset, we may indicate that in the matter of entering
into a contract, the State does not stand on the same footing as
a private person who is free to enter into a contract with any C
person he likes. The State, in exercise of its various
functions, is governed by the mandate of Article 14 of
the Constitution which excludes arbitrariness in State
action and requires the State to act fairly and reasonably.
The action of the State in the matter of award of a contract D
has to satisfy this criterion. Moreover a contract would
either involve expenditure from the State exchequer or
augmentation of public revenue and consequently the
discretion in the matter of selection of the person for
award of the contract has to be exercised keeping in
view the public interest involved in such selection. The E
decisions of this Court, therefore, insist that while dealing with
the public, whether by way of giving jobs or entering into
contracts or issuing quotas or licences or granting other forms
of largesse, the Government cannot act arbitrarily at its sweet
will and like a private individual, deal with any person it pleases, F
but its action must be in conformity with the standards or norms
which are not arbitrary, irrational or irrelevant. It is, however,
recognised that certain measure of “free play in the joints” is
necessary for an administrative body functioning in an
administrative sphere.”
G
(emphasis supplied)
15. In Food Corporation of India v. M/s Kamdhenu Cattle
Feed Industries8, this Courtheld that ‘in the contractual sphere […]
7
(1995) 1 SCC 478
8
(1993) 1 SCC 71 H
488 SUPREME COURT REPORTS [2023] 1 S.C.R.

A the State and all its instrumentalities have to conform to Article 14 of the
Constitution.’ The respondent filed a writ petition before the High Court
challenging the appellant’s refusal to accept the highest tender submitted
by it for a stock of damaged rice. This Court held:
“7. In contractual sphere as in all other State actions, the State
B and all its instrumentalities have to conform to Article 14 of the
Constitution of which non-arbitrariness is a significant facet. There
is no unfettered discretion in public law: A public authority
possesses powers only to use them for public good. This imposes
the duty to act fairly and to adopt a procedure which is ‘fairplay in
action’. Due observance of this obligation as a part of good
C administration raises a reasonable or legitimate expectation in every
citizen to be treated fairly in his interaction with the State and its
instrumentalities, with this element forming a necessary component
of the decision-making process in all State actions. To satisfy this
requirement of non-arbitrariness in a State action, it is, therefore,
D necessary to consider and give due weight to the reasonable or
legitimate expectations of the persons likely to be affected by the
decision or else that unfairness in the exercise of the power may
amount to an abuse or excess of power apart from affecting the
bona fides of the decision in a given case. The decision so made
would be exposed to challenge on the ground of arbitrariness.
E Rule of law does not completely eliminate discretion in the exercise
of power, as it is unrealistic, but provides for control of its exercise
by judicial review.”
3.2.1 Tender: a constitutional requirement?

F 16. This Court has consistently held that government contracts
must be awarded by a transparent process. The process of inviting tenders
ensures a level playing field for competing entities. While there may be
situations which warrant a departure from the precept of inviting tenders
or conducting public auctions,the departure must not be unreasonable or
discriminatory.9 In Centre for Public Interest Litigation v. Union of
G India10 the ‘first-cum-first serve’ policy was held to be arbitrary while
alienating natural resources. However, the Court observed that though
9
M/s Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir, (1980) 4 SCC 1;
Sachidanand Pandey v. State of West Bengal, (1980) 4 SCC 1; Haji T.M Hassam
Rawther v. Kerala Financial Corporation (1988) 1 SCC 166
10
H (2012) 3 SCC 1
M/S IMPCL v. KERALA AYURVEDIC CO OPERATIVE SOCIETY LTD. 489
& ORS. [DR. DHANANJAYA Y CHANDRACHUD, CJI]

auction is a ‘preferred’ method of allocation, it cannot be construed to A
be aconstitutional requirement.
17. In Natural Resources Allocation, in re Special Reference
No. 1 of 201211, a Presidential Reference was made in the backdrop of
the decision in Centre for Public Interest Litigation (supra) where
this Court had held that the method of first-cum-first serve used to allocate B
2G radio spectrum was arbitrary and illegal. The reference was on
whether the ‘only permissible method for disposal of all natural resources
across all sectors and in all circumstances is by the conduct of auctions’.
Justice Khehar in his concurring opinion in Natural Resources
Allocation (supra) held that while there is no constitutional mandate in
favour of auction under Article 14, deviation from the rule of allocation C
through auction must be tested on grounds of arbitrariness and fairness.
In this context, it was observed as follows:
“148. In our opinion, auction despite being a more preferable
method of alienation/allotment of natural resources, cannot be held
to be a constitutional requirement or limitation for alienation of all D
natural resources and therefore, every method other than auction
cannot be struck down as ultra vires the constitutional mandate.
149. Regard being had to the aforesaid precepts, we have opined
that auction as a mode cannot be conferred the status of a
constitutional principle. Alienation of natural resources is a policy E
decision, and the means adopted for the same are thus, executive
prerogatives. However, when such a policy decision is not backed
by a social or welfare purpose, and precious and scarce natural
resources are alienated for commercial pursuits of profit
maximising private entrepreneurs, adoption of means other than F
those that are competitive and maximise revenue may be arbitrary
and face the wrath of Article 14 of the Constitution. Hence, rather
than prescribing or proscribing a method, we believe, a judicial
scrutiny of methods of disposal of natural resources should depend
on the facts and circumstances of each case, in consonance with
the principles which we have culled out above. Failing which, the G
Court, in exercise of power of judicial review, shall term the
executive action as arbitrary, unfair, unreasonable and capricious
due to its antimony with Article 14 of the Constitution.”

11
(2012) 10 SCC 1 H
490 SUPREME COURT REPORTS [2023] 1 S.C.R.

A 18. In Vallianur Iyarkkai Padukappu Maiyam v. Union of
India12, a three-judge Bench of this Court held that the State is not
bound to allot resources such as water, power, and raw materials through
tender and is free to negotiate with a private entrepreneur. In that case,
the Government of Pondicherry entered into an agreement for the
development of Pondicherry Port without issuing an advertisement or
B
inviting tenders. This Court held that the action of the Government of
Pondicherry was justified because on account of historical, political and
other reasons, the Union Territory is not yet industrially developed and
thus, entrepreneurs have to be offered attractive terms to persuade them
to set up industries. The relevant observations are extracted below:
C “171. In a case like this where the State is allocating resources
such as water, power, raw materials, etc. for the purpose of
encouraging development of the port, this Court does not think
that the State is bound to advertise and tell the people that it wants
development of the port in a particular manner and invite those
D interested to come up with proposals for the purpose. The State
may choose to do so if it thinks fit and in a given situation it may
turn out to be advantageous for the State to do so, but if any
private party comes before the State and offers to develop the
port, the State would not be committing breach of any constitutional
obligation if it negotiates with such a party and agrees to provide
E resources and other facilities for the purpose of development of
the port.
172. The State is not obliged to tell Respondent 11 “please wait I
will first advertise, see whether any other offers are forthcoming
and then after considering all offers, decide whether I should get
F the Port developed through you”. It would be most unrealistic to
insist on such a procedure, particularly, in an area like Pondicherry,
which on account of historical, political and other reasons, is not
yet industrially developed and where entrepreneurs have to be
offered attractive terms in order to persuade them to set up
G industries. The State must be free in such a case to negotiate with
a private entrepreneur with a view to inducing him to develop the
Port and if the State enters into a contract with such an
entrepreneur for providing resources and other facilities for
developing the Port, the contract cannot be assailed as invalid
12
H (2009) 7 SCC 561
M/S IMPCL v. KERALA AYURVEDIC CO OPERATIVE SOCIETY LTD. 491
& ORS. [DR. DHANANJAYA Y CHANDRACHUD, CJI]

because the State has acted bona fide, reasonably and in public A
interest.”
19. In Nagar Nigam v. Al Farheem Meat Exporters (P) Ltd.13,
the respondent was granted a license fora year to run a slaughter house
owned by the appellant-corporation. On the completion of the term of
the license, the appellant issued an advertisement inviting applications B
for granting a fresh contract. The respondent challenged the
advertisement.The Courtobserved that it is the requirement of the
principle of non-arbitrariness postulated in Article 14 that contracts by
the State, its corporations, instrumentalities, and agencies should as a
general rule be granted through public tender. Noting that it is necessary
to maintain transparency in the grant of public contracts, the Court ruled C
that the State must give contracts only by tender and not through private
negotiations. This Court held that a contract can be granted by private
negotiation only in exceptional circumstances having regard to the ‘nature
of the trade or largesse or for some other good reason’. Some of the
exceptional circumstances that were listed were: (a) award of contracts D
in the event of natural calamities and emergencies; (b) situations where
the supplier has exclusive rights over goods and there is no reasonable
alternative;and (c) there are no bidders or where the bid offered is too
low. The Court has upheld the award of contracts without holding a
public auction in situations where conducting a public auction is impossible
given the surrounding circumstances. When the government deviates E
from the general rule of allotting a contract without following a transparent
process such as inviting tenders, it has to justify its actions on the
touchstone of the principles postulated in Article 14 :
13. This Court time and again has emphasised the need to maintain
transparency in grant of public contracts. Ordinarily, maintenance F
of transparency as also compliance with Article 14 of the
Constitution would inter alia be ensured by holding public auction
upon issuance of advertisement in the well-known newspapers.
That has not been done in this case. Although the Nagar Nigam
had advertised the contract, the High Court has directed that it G
should be given for 10 years to a particular party (Respondent 1).
This was clearly illegal.
14. It is well settled that ordinarily the State or its instrumentalities
should not give contracts by private negotiation but by open public
13
(2006) 13 SCC 382 H
492 SUPREME COURT REPORTS [2023] 1 S.C.R.

A auction/tender after wide publicity. In this case the contract has
not only been given by way of private negotiation, but the negotiation
has been carried out by the High Court itself, which is
impermissible.
15. We have no doubt that in rare and exceptional cases, having
B regard to the nature of the trade or largesse or for some other
good reason, a contract may have to be granted by private
negotiation, but normally that should not be done as it shakes the
public confidence.
16. The law is well settled that contracts by the State, its
C corporations, instrumentalities and agencies must be normally
granted through public auction/public tender by inviting tenders
from eligible persons and the notification of the public auction or
inviting tenders should be advertised in well-known dailies having
wide circulation in the locality with all relevant details such as
date, time and place of auction, subject-matter of auction, technical
D specifications, estimated cost, earnest money deposit, etc. The
award of government contracts through public auction/public
tender is to ensure transparency in the public procurement, to
maximise economy and efficiency in government procurement,
to promote healthy competition among the tenderers, to provide
E for fair and equitable treatment of all tenderers, and to eliminate
irregularities, interference and corrupt practices by the authorities
concerned. This is required by Article 14 of the Constitution.
However, in rare and exceptional cases, for instance during natural
calamities and emergencies declared by the Government; where
the procurement is possible from a single source only; where the
F supplier or contractor has exclusive rights in respect of the goods
or services and no reasonable alternative or substitute exists; where
the auction was held on several dates but there were no bidders
or the bids offered were too low, etc., this normal rule may be
departed from and such contracts may be awarded through
G “private negotiations”. (See Ram and Shyam Co. v. State of
Haryana [(1985) 3 SCC 267 : AIR 1985 SC 1147] .”
20. Inviting tenders and conducting public auctions are considered
to be preferred methods of allocation for two reasons: firstly procurement
can be made at the best price; and secondly, allocation is through a
H transparent process. However, if the purpose of allocation by the State
M/S IMPCL v. KERALA AYURVEDIC CO OPERATIVE SOCIETY LTD. 493
& ORS. [DR. DHANANJAYA Y CHANDRACHUD, CJI]

is not revenue maximization, the State could award contracts through A
other methods, provided it is non-arbitrary and meets the requirements
of Article 14.
21. The appellant-State contends that since in the present case,
there is no involvement of ‘State largesse’ and no disposal of State
property, it was not bound to grant the contract to IMPCL through tender. B
It is argued that in such a situation, the High Court on a perusal of the
relevant material, ought to have only scrutinised if there was an oblique
motive involved in purchasing medicines from IMPCL. Government
contracts involve expenditure out of the public exchequer. Since they
involve payment out of the public exchequer, the moneys expended must
not be spent arbitrarily. The State does not have absolute discretion while C
spending public money. All government actions includinggovernment
contracts awarded by the State must be tested on the touchstone of
Article 14.
22. The following principles emerge from the discussion above:
D
(i) Government action must be just, fair and reasonable and in
accordance with the principles of Article 14; and
(ii) While government can deviate from the route of tenders or
public auctions for the grant of contracts, the deviation must
not be discriminatory or arbitrary. The deviation from the E
tender route has to be justifiedand such a justification must
comply with the requirements of Article 14.
3.3 Interpretation of paragraph 4(vi)(b) of the Operational
Guidelines
23. Before interpreting paragraph 4(vi)(b) of the Operational F
Guidelines, it is necessary that we refer to the circulars on the
procurement of Ayurvedic drugs. In 1994, the Ministry of Health and
Family Welfare issued a communication stating that Ayurvedic medicines
are to be procured only from IMPCL because it is the only entity which
manufactures quality medicines. On 8 May 2008, the Government of
G
India issued another memorandum on similar lines. On 9 August 2016,
the Ministry of AYUSH issued a circular responding to the clarification
sought by the States on the procurement of AYUSH medicines from
IMPCL. The circular stipulates that the States ‘may’ procure Ayurvedic
and Unani Medicines from IMPCL. On 7 December 2016, the Ministry
of AYUSH issued a circular stating that the procurement guidelines under H
494 SUPREME COURT REPORTS [2023] 1 S.C.R.

A NAM also allow for the purchase of medicines from PSUs and
pharmacies of the State Governments and co-operatives that have their
own manufacturing units and are GMP compliant. It was thus stated
that the States may also procure Essential Ayurvedic Medicines directly
from Oushadhi (A Kerala Government owned Ayurvedic medicine
manufacturing unit) subject to the condition that medicines have to be
B
provided within the rates of IMPCL.
24. On 2 January 2019, the Ministry of AYUSH issued a
notification14 in supersession of the notification dated 7 December 2016.
While stipulating that the procurement of medicines is the ‘prerogative’
of the State Government, the notification stated that the following
C guidelines have to be observed:
(i) Essential drugs have to be procured from the Essential Drugs
List (EDL) published by the Ministry of AYUSH;
(ii) At least 50 percent of the grant-in-aid has to be used to
D procure medicines from IMPCL or other Central/State
PSUs’ or pharmacies under the State-Governments and Co-
operatives;
(iii) The remaining grant-in-aid may be used for procuring the
medicines from other units that have valid manufacturing
E licenses; and
(iv) The medicines have to be manufactured in their own
manufacturing units and must be GMP compliant.
25. Thus, the letter which was issued by the Union Ministry of
Health and Family Welfare in 1994 stating that Ayurvedic medicines
F must be procured only from IMPCL is superseded by the latest notification
issued by the Ministry of AYUSH in 2019 which stipulates thatparagraph
4(vi)(b) of the Operational Guidelines does not differentiate between
the units mentioned in the provision. Paragraph 4(vi)(b) does not stipulate
that IMPCLwill have a higher standing as compared to other
manufacturing units of the State Governments and cooperatives
G mentioned in the paragraph. The position of the Ministry of AYUSH as
evidenced by the 2019 notification is that 50 percent of the grant-in-aid
shall be used to procure medicines from any of the establishments
specified in the paragraph. This conclusion is substantiated by the use of
14
H “2019 Notification”
M/S IMPCL v. KERALA AYURVEDIC CO OPERATIVE SOCIETY LTD. 495
& ORS. [DR. DHANANJAYA Y CHANDRACHUD, CJI]

the phrase ‘or’ in paragraph 4(vi)(b) - IMPCL ‘or’ from PSUs’, A
pharmacies under State Governments and co-operatives. Thus, on a
plain reading of paragraph 4(vi)(b), it is evident that all the units mentioned
in the paragraph are placed at an equal footing. The provision does not
create a gradation amongst the manufacturing units mentioned in the
paragraph. Nor does it evince an intent to create a monopoly.
B
3.4 Validity of award of government contract to IMPCL
26. The appellant flags the insurmountable difficulties in awarding
contracts for the purchase of Ayurvedic drugs because of peculiar
problems in the process of manufacture. Reference was made to the
letter dated 16 July 1994 issued by the Ministry of Health and Family C
Welfare stating that purchase through tender would be ‘inadequate’ for
the procurement of Ayurveda, Siddha, and Unani medicines because (i)
there is a wide variation in the prices of the raw materials as a result of
which the cost of the same drug using the ‘best raw materials’ maybe
ten times the cost if the ‘poorest’ quality of raw materials is used;and (ii)
it is impossible to test the composition and the quality of raw materials D
used in the drugs. The letter of the Ministry of Health and Family Welfare
dated 16 July 1994 is extracted below:
“You may perhaps be aware that Government of India has
set up in collaboration with Government of Uttar Pradesh,
Indian Medicines Pharmaceutical Corporation ltd. for E
manufacture of high quality drugs of the Indian Systems of
Medicine. The drugs are prepared strictly in accordance with
the classical texts and genuine raw materials are used to
prepare these drugs.
2. It is our experience that the ordinary financial procedures F
such as tendering are inadequate in relation to the purchase
of Ayurveda, Siddha and Unani medicines. This is because:-
1. Of the very wide variation in prices of raw materials required
for making the drugs. The cost of the same drug using the
best raw materials may be 10 times the cost if the poorest
G
quality raw materials are used.
2. The impossibility of testing the exact composition of drugs of
its raw materials and their quality.
3. Pharmacopeial work in these systems of medicines is at a
very initial stages. Tests presently available can reveal the H
496 SUPREME COURT REPORTS [2023] 1 S.C.R.

A presence of harmful ingredients/adulterants and could indicate
the presence of certain compounds at best. However,
since the basic components of ISM medicines are herbs
which are themselves composed of many organic
compounds, its well nigh impossible with the present
state of technology to test and check whether the
B
ingredients claimed are actually present in the
proportion claimed and whether they are of the right
quality and whether the proper process prescribed in
theclassical texts have been used to prepare the
medicines. Thus purchases purely on the basis of tendering
C are likely to lead to purchase medicines which are
inefficacious.
4. The only alternative available at present to ensure quality
drugs is to have inspectors at the manufacturing site when
the manufacturing process is going on. This also is not a
D practical alternative since drug control organisations do not
have the man power for close supervision. This situation is
responsible for the reported malpractices with regard to such
medicines. It is under these circumstances that a decision
has been taken in the Ministry of Health and Family Welfare
to purchase the requirements of the CGHS only from IMPCL
E at process which are been [] as fair and have been scrutinised
by a representative of the Cost Accounts Branch of the
Finance Ministry.
5. Despite ensuring preparation of drugs strictly according to
the classical texts, the prices charged by IMPCL compare
F favourably with competing brands in most cases, for a few
cases the process may be a little higher but as already pointed
out there is more reliability in terms of quality assurance
because IMPCL does not allow commercial interests over
the mandate for preparing medicines strictly according to the
G classical texts using genuine raw materials. For instance
IMPCL does not use extra sugar or other taste enhancers
mainly to make its medicines more popular.
6. In view of the above, you may like to consider meeting the
requirements of State Government Dispensaries and Hospitals
H for medicines manufactured by IMPCL at the rates fixed for
M/S IMPCL v. KERALA AYURVEDIC CO OPERATIVE SOCIETY LTD. 497
& ORS. [DR. DHANANJAYA Y CHANDRACHUD, CJI]

CGHS supplies but subject to the local variation in transport A
costs. In that case you may like to contact Chairman cum
Managing Director, Indian Medicines Pharmaceutical
Corporation ltd., (IMPCL), Mohan Distt, Almora, U.P”
(emphasis supplied)
27. On 8 May 2008, the Government of India issued another B
memorandum stipulating that the medicines produced by IMPCL are
according to classical texts and of assured quality. The memorandum
mentioned that there is an absence of fully developed pharmaceutical
standards to test the quality of Ayurvedic and Unani medicines. The
relevant paragraph of the memorandum indicates that: C
“(i) The medicines produced by IMPCL are strictly as per classical
texts and hence prove quality.
(ii) The rates of the medicines produced by the company are
reasonable as the same are fixed by the Cost Accounts Branch
of the Ministry of Finance; D
(iii) In the absence of fully developed pharmaceutical standards
for Ayurvedic and Unani Medicines in the country, the CGHS
Research Councils is/are not fully equipped to ensure that the
purchased medicines are of right quality.”
E
28. The letter indicates that there is no methodto determine the
ingredients and quality of Ayurvedic drugs. This would mean that there
was no method to determine the quality of the medicines produced by
IMPCL as well. The Ministry of Health and Family Welfare noted that
it has decided to purchase Ayurvedic drugs only from IMPCL because
the process is fair and is scrutinised by a representative of the Ministry F
of Finance. However, the first respondent contends that the medicines
procured from IMPCL are vetted by the Ministry of Finance for the
limited purpose of undertaking an audit. At this juncture, it is necessary
to note that IMPCL has been set up by the Government of India in
collaboration with the Government of Uttarakhand. The Government of
G
India holds 98.11 percent of the shares of IMPCL and 1.89 percent of
the shares are held by the State Government. The letter issued by the
Ministry of Health and Family Welfare indicates that merely because
IMPCL is an establishment in which the Central Government has a major
stake, it is assumed thatthere is no ‘commercial interference’ and the
H
498 SUPREME COURT REPORTS [2023] 1 S.C.R.

A medicines are prepared according to classical texts using ‘genuine raw
materials’.
29. There is no material on record to support the submission that
IMPCL is the only establishment among the establishments mentioned
in paragraph 4(vi)(a) that manufacture good quality Ayurvedic drugs. In
B fact, paragraph 4(vi)(b) states that 50 percent of the grant-in-aid shall
be used to purchase medicines from the units mentioned in the paragraph
“keeping in view the need for ensuring quality of AYUSH drugs and
medicines.” This would indicate that the need for ensuring quality is
subserved by all the sources mentioned there. Besides IMPCL, which is
an establishment of the Government of India, paragraph 4(vi)(b) includes
C other establishments of the State Governments or co-operative societies.
The contention that IMPCL does not have any commercial interest
because it is an establishment developed by the Government of India is
then equally applicable to other establishments prescribed in paragraph
4(vi)(b).
D 30. The argument that the procurement of Ayurvedic drugs from
IMPCL would fall within the exceptional circumstances (assurance of
quality medicines) is erroneous. The submission of the appellant that
IMPCL is the sole producer of quality Ayurvedic medicines is based on
surmises and conjectures without any cogent material to support the
E claim.15 In fact, the notification of 2 January 2019 issued by the Ministry
of AYUSH stipulates that 50 percent of the grant-in-aid has to be used
to procure medicines from IMPCL or other Central/State PSUs’ or
pharmacies under the State-Governments and co-operatives.It is open
to the appellant to procure medicines using any method other than tender,
so long as it is not arbitrary. The claim of the appellant is that it deviated
F from the rule of tender because IMPCL is the only establishment that
produces quality medicines. However, there is no material to substantiate
the claim that IMPCL is the only establishment which manufactures
‘quality’ medicines to the exclusion of other establishments mentioned in
paragraph 4(vi)(b). The appellant has been unable to discharge the burden
G placed on it by producing cogent material demonstrating that the
procurement of medicines through nomination is warranted because of
the existence of exceptional circumstances bearing on need for quality.
The action of the appellants of procuring medicines only from IMPCL to
15
See State of Tamil Nadu v. National South Indian River Interlinking Agriculturist
H Association, Civil Appeal 6764 of 2021.
M/S IMPCL v. KERALA AYURVEDIC CO OPERATIVE SOCIETY LTD. 499
& ORS. [DR. DHANANJAYA Y CHANDRACHUD, CJI]

the exclusion of the other establishments mentioned in paragraph 4(vi)(c) A
is arbitrary and violative of Article 14 of the Constitution.
31. In the given circumstances, inviting tenders from the entities
mentioned in paragraph 4(vi)(b) is the most transparent and non-arbitrary
method of allocation that can be undertaken. Hence, the appellant must
henceforth purchase Ayurvedic medicines only through a free and B
transparent procedure such as tenders. The appellant may deviate from
this rule and procure medicines by nomination only if exceptional
circumstances exist. In such a situation, the appellant must demonstrate
the existence of exceptional circumstances on the basisof cogent material.
32. For the reasons indicated above, the appeals against the C
judgment of the Lucknow Bench of the High Court of Judicature at
Allahabad dated 18 October 2019 are dismissed.
33. Applications for intervention16 were filed by the Federation of
AYUSH drugs Manufacturers17, the President and Secretary of the
Federation, the investor of “S-compound” 18, and a small-scale D
manufacturing unit engaged in the production of Ayurvedic Medicines.
The Federation consists of nine members who are registered under the
Micro, Small and Medium Enterprises Development Act 2006 and are
engaged in the manufacture and sale of Ayurvedic drugs. The following
arguments were made in the application:
E
(i) This Court in Caterpillar India Pvt. Ltd. v. Western Coal
Fields 19 observed that purchase preference creates a
monopoly. In view of the judgment in Caterpillar India
(supra), the Union Cabinet by an order dated 21 November
2007 adopted a policy whereby purchase preference to
Central Public Sector Enterprises was terminated from 31 F
March 2008; and
(ii) The Director, Central Vigilance Commission issued a circular
on 9 November 200920 to review the Purchase Preference
Policy for the products and services of Central Public Sector
Enterprises in view of the judgment in Caterpillar India G
16
IA 9631 of 2020; IA No. 46786 of 2022
17
"Federation”
18
S-Compound is a recognised herbal ayurvedic drug used in the treatment of ‘rheumatoid
arthritis’ and ‘osteo arthritis’.
19
(2007) 11 SCC 32
20
Circular No. 31/10/09 H
500 SUPREME COURT REPORTS [2023] 1 S.C.R.

A Pvt. Ltd. (supra). On 23 March 2012, the Ministry of
MSME framed a policy titled “Public Procurement Policy
for Micro and Small Enterprises (MSEs) Order 2012” which
stipulates that every Central Ministry or Department of PSU
shall procure a minimum of 20 percent of the total annual
purchases from micro and small enterprises.
B
34. The intervention applicant submitted as follows:
(i) Policies of the Central and State government stipulate that
25 percent of the medicines shall be procured from MSMEs.
Thus, the term ‘atleast 50%’ in paragraph 4(vi)(b) of the
Operational Guidelines must be read as limiting the
C procurement from establishments in paragraph 4(vi)(b) to
50 percent and giving other manufacturers a level playing
field under paragraph 4(vi)(c);
(ii) The Central and the State Governments have notified
procurement policies directing that a certain percent of the
D procurement must be from the MSMEs’. The procurement
of medicines from IMPCL on nomination is contrary to the
procurement policies notified by the Government;
(iii) IMPCL also sells products in the open market. Thus, the
argument that IMPCL is established solely to supply
medicines to the Government is misleading; and
E
(iv) IMPCL has not submitted records to show that the other
manufacturers cannot supply equivalent or better-quality
drugs.
35. The intervention applications seek to enlarge the scope of the
Special Leave Petition. The issue before this Court falls squarely on the
F interpretation of paragraph 4(vi)(b). However, the intervention applicant
has prayed that in accordance with the policies of the State and the
Central Government, a minimum percent of Ayurvedic drugs must be
procured from MSMEs under paragraph 4(vi)(c). This is beyond the
scope of the instant Special Leave Petition.
G 36. For the reasons indicated above, IA 9631 of 2020 and IA No.
46786 of 2022 are dismissed. The interveners would have to follow their
own independent remedies in accordance with law.
37. Pending application(s), if any, stand disposed of.
Devika Gujral Appeals dismissed.
H (Assisted by : Mahendra Yadav, LCRA)