UTKAL PHARMACEUTICALS MANUFACTURERS ASSOCIATION Vs. STATE OF ORISSA

JUDGEMENT

(1.) THIS writ petition has been filed by Utkal Pharmaceuticals Manufacturers Association, petitioner no.1, which is an association of twenty small scale pharmaceutical industries and registered under the Societies Registration Act, 1860, and its Joint Secretary (Executive), petitioner no.2, assailing Clause 2.1 of the Tender Conditions in respect of Tender Call Notice No.SDMU/2009-2010-DMC-11-009 issued by O. P. No.2-the Director of Health Services, State Drug Management Unit, Orissa, vide letter no.11128 dated 29.10.2009 under Annexure-9, fixing Rs.10 crores or more as the annual turnover of the principal manufacturing units/the tendering firms for pharmaceutical products of each year of last three financial years, as being illegal, arbitrary, discriminatory and contrary to the Industrial Policy Resolution, 2007 (IPR, 2007) as well as the Orissa Micro, Small and Medium Enterprise Development Policy, 2009 (shortly called 'the MSME Policy 2009'), which has been declared under the notification dated 17.2.2009 published in the Orissa Gazette on 9.3.2009, vide Annexure-6. The petitioners have prayed to relax/reduce/modify the minimum annual turnover fixed in Clause 2.1 of the Tender Conditions to Rs.10 lakhs with a direction to the opposite parties to allow the local SSI units/MSME units to participate in the tender pursuant to the Tender Call Notice, Annexure-9.

(2.) O.P. no.2-the Director of Health Services, State Drug Management Unit, (DHS in short), by the aforesaid Tender Call Notice, Annexure-9, invited tenders in sealed cover from reputed manufacturing firms having valid manufacturing licence and GMP (Good Manufacturing Practice) as per a revised schedule, i.e. Schedule-M, for supply of drugs and medical consumables for a period of one year from the date of approval of tender on rate contract basis. According to the petitioners, the State Govt. in order to ensure that store items for Government Departments and agencies under its control are procured from industries located within the State and further those local units get price preference for the aforesaid purpose and simultaneously to ensure that local products are cost-effective meeting overall quality requirement for competitiveness, efforts are to be made to distribute purchase orders equitably among the participating industries. It is stated that to prevent monopoly, the rate contract system in Orissa was introduced at the behest of the erstwhile Health Department of the Govt. of Orissa. The rate contract system for drugs of Small Scale Pharmaceutical Industries has been in force since last twenty years. The rate contract system is now within the domain of the Directorate of Export Promotion and Marketing (DEPM). Keeping in view the above objectives, certain items of drugs and medical consumables are earmarked by the State Govt. for purchase from approved local Small Scale Industrial Units (S.S.I. Units) and those products to be purchased only from the DEPM approved SSI Units taking their past performance and capacity of production into consideration. For this, the local SSI units were to have (a) valid drug manufacturing licence and (b) valid Export Promotion and Marketing (EPM) rate contract. The basic features of rate contract system for drugs and medicines formulated by the State Govt. are : (i) The prices of the drugs and medicines under the rate contract are to be finalized by the Drugs Committee of EPM in which the Health Secretary shall be the Chairman on cost plus basis and the rates so finalized by the DEPM Drugs Committee shall be subject to audit by the Comptroller and Auditor General (CAG); (ii) The rate contract system is a unique system which shall provide market support to MSMEs (Mirco, Small and Medium Enterprises) as per the provisions of the Industrial Policy Resolution (IPR) and (iii) The rate contract in respect of specific store items not in the exclusive list and manufactured by the local small scale industrial units is to be finalized by the DEPM. This was done on the basis of competitive offers received from local units, cost structure obtained from these offers, market price of similar items valid DGS & D rate, if any, and other relevant consideration. The objective of adopting the aforesaid policy was that the Departments and Agencies under the control of the State Govt. may purchase rate contract items from the rate contract holder/small scale industries at the price fixed, without inviting tenders. DEPM vide Circular nos.2106(200) and 2113(200) dated 8.3.1999 issued fresh rate contracts in respect of drugs and medicines with SSI units in the State for supply of store items. Phase-I of the said rate contract included 31 items and Phase-II contained 44 items. When the matter stood thus, the State Govt. in Industries Department vide circular No.XIV-HI-9/04-3042/I dated 17.2.2004 framed the Purchase Policy as envisaged under the IPR, 2001. Clause 3 of the said Purchase Policy provides : "3) Rate Contract : 63 i. Rate contract in respect of specific store items not in the exclusive list and manufactured by the local small scale industrial units will be UTKAL PHARMACEUTICALS -V-STATE OF ORISSA [B. P. DAS, J. ] finalized by the Director of Export Promotion & Marketing. This will be done on the basis of competitive offers received from local units, cost structure obtained from these offers, market price of similar items valid DGS&D rate (if any) and other considerations relevant to fixing the price of the product. Besides, in respect of bulk items a representative of the purchasing Department would be actively associated at the time of rate contract finalization. ii. State Government Departments and Agencies under the control of the State Government will purchase rate contract items from the rate contract holder/Small Scale industry at the price fixed, without inviting tenders." According to the petitioners, periodic extensions were granted by the DEPM as to validity of rate contract with MSMEs. In 2003 the State Govt. with the financial assistance of the Central Govt. under the schemes like Small Industry Cluster Development Programme (SICDP) formulated a special package for self-employment with the prime objective to promote small scale industries through development of industrial clusters, ancillary and downstream industries, all eligible new SSI units and existing SSI units taking up expansion/modernization/diversification located in industrially backward areas which started commercial production between 1.4.2003 and 31.3.2007 to be eligible for sales tax reimbursement for a period of 5 years limited to 100% Fixed Capital Investment. The Director of Industries, O.P. no.3, taking into account the views of the Director, SISI and other concerned organizations by order dated 7.7.2005 identified various clusters for different kinds of product/process SSI units including pharmaceuticals. In a meeting held on 2.9.2006 under the chairmanship of the Commissioner-cum- Secretary, Industries Department, regarding Cluster Development, after discussing various action points, it was resolved under paragraph 2 that Utkal Pharmaceuticals Manufacturers' Association (UPMA) should register the SPV for implementation of the cluster development programme. The representative of UPMA was asked to furnish proposal under SICDP at the earliest. Under paragraph 3, it was further resolved that UPMA should prepare a report on quantum of generic drug purchase of the State Government and submit proposal to the Industries Department for improving the share of local industries in the government purchases. The proposal was to be submitted quickly under SICDP. While the matter stood thus, IPR 2007 came into force with effect from 2.3.2007, inter alia, laying down marketing support to Micro and Small Scale Enterprise in Government Procurement. The relevant clauses of the IPR 2007, i.e., Clauses 13.3, 13.6 and 30, on which the petitioners have placed reliance, are extracted hereunder :

(3.) ACCORDINGLY we allow this writ petition and quash the impugned eligibility condition as per Clause 2.1 of the Tender Conditions of the Tender Notice, Annexure-9, i.e., requiring the principal manufacturing units/the tendering firms whose annual turnover is Rs.10 crores or more for pharmaceutical products in each year of last three financial years to participate in the tender, so far as it relates to the local SSI units and MSMEs of the State. The State Govt. is directed to accept the recommendations made by the Commissioner-cumSecretary, IndustriesDepartment, vide Annexure-8, wherein decision has been taken to relax the minimum annual turnover to Rs.10 lakhs for the SSI units and MSMEs and act in terms of said Annexure-8. There shall be no order as to cost. Writ petition allowed.