{"id":24420,"date":"2010-06-23T00:00:00","date_gmt":"2010-06-22T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/ms-rkg-pharma-pvt-ltd-vs-state-of-kerala-on-23-june-2010"},"modified":"2016-04-11T16:59:56","modified_gmt":"2016-04-11T11:29:56","slug":"ms-rkg-pharma-pvt-ltd-vs-state-of-kerala-on-23-june-2010","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/ms-rkg-pharma-pvt-ltd-vs-state-of-kerala-on-23-june-2010","title":{"rendered":"M\/S.Rkg Pharma Pvt.Ltd vs State Of Kerala on 23 June, 2010"},"content":{"rendered":"
Kerala High Court<\/div>\n
M\/S.Rkg Pharma Pvt.Ltd vs State Of Kerala on 23 June, 2010<\/div>\n
       \n\n  \n\n  \n\n \n \n  IN THE HIGH COURT OF KERALA AT ERNAKULAM\n\nWP(C).No. 5512 of 2010(L)\n\n\n1. M\/S.RKG PHARMA PVT.LTD, 12TH MILE STONE,\n                      ...  Petitioner\n2. M\/S.UNICURE (INDIA)PVT.LTD,C-22&23,\n3. M\/S.VIVEK PHARMACHEM (INDIA)LTD.,\n\n                        Vs\n\n\n\n1. STATE OF KERALA, REPRESENTED BY THE\n                       ...       Respondent\n\n2. THE KERALA MEDICAL SERVICES CORPORATION\n\n                For Petitioner  :SRI.M.RAMESH CHANDER\n\n                For Respondent  :SRI.M.AJAY,SC,KERALA MEDICAL SERV.CORPN\n\nThe Hon'ble MR. Justice P.N.RAVINDRAN\n\n Dated :23\/06\/2010\n\n O R D E R\n                        P.N.RAVINDRAN, J.\n                 -------------------------------------\n                 W.P.(C)Nos.5512 & 5606 of 2010\n                 --------------------------------------\n                       Dated 23rd June, 2010\n\n                             JUDGMENT\n<\/pre>\n
            The petitioners in these writ petition are manufacturers of<\/p>\n
drugs.    They have filed these writ petitions challenging Ext.P4<\/p>\n
Government order and Ext.P5 corrigendum issued by the second<\/p>\n
respondent Corporation. The brief facts of the case are as follows.<\/p>\n
W.P.(C)No.5512 of 2010<\/p>\n
            2. The second respondent, the Kerala Medical Services<\/p>\n
Corporation Limited (hereinafter referred to as `the Corporation’ for<\/p>\n
short), is a Government company incorporated under the Companies<\/p>\n
Act, 1956. The Corporation was formed to harness resources for the<\/p>\n
timely procurement and prompt distribution of medicines in health<\/p>\n
care institutions in an efficient, transparent and cost effective way<\/p>\n
thereby ensuring full utilization of funds. The purpose for which the<\/p>\n
Corporation was established is set out in Ext.P1 Government order<\/p>\n
dated   1.11.2007    by    which,   the  Government     approved   the<\/p>\n
Memorandum and Articles of Association of the Corporation.<\/p>\n
            3. After the Corporation was established, during the year<\/p>\n
2009, it invited tenders for supply of medicines. As per the tender<\/p>\n
conditions, small scale industrial units were exempted from<\/p>\n
WP(C).Nos.5512 & 5606\/2010            2<\/span><\/p>\n
furnishing earnest money deposit.           Later, after the tender was<\/p>\n
awarded to them, the Corporation insisted that they should furnish<\/p>\n
security deposit. The small scale industrial units thereupon filed W.P.<\/p>\n
(C)Nos.8915 and 8940 of 2009 in this Court challenging the direction<\/p>\n
issued by the Corporation to furnish security deposit. Referring to<\/p>\n
G.O.(P)No.385\/2008\/Fin. dated 27.8.2008, a copy of which was<\/p>\n
produced and marked as Ext.P6 in W.P.(C)No.8915 of 2009, it was<\/p>\n
contended that the stipulation in clause (c) thereof does not apply to<\/p>\n
the Corporation for the reason that it is not a public sector<\/p>\n
undertaking working on a competitive basis but a service<\/p>\n
organization. A copy of Ext.P6 is on record as Ext.R3(4). Reliance<\/p>\n
was placed on Ext.R3(5) letter dated 23.1.2009 sent by the Principal<\/p>\n
Secretary to Government, Finance Department to a small scale<\/p>\n
industrial unit wherein it was stated that the Corporation is a service<\/p>\n
organization of the Government of Kerala and that it does not<\/p>\n
undertake sales or compete in open market and therefore it is not a<\/p>\n
competitive public sector undertaking. When W.P.(C)Nos.8915 and<\/p>\n
8940 of 2009 came up for hearing on 23.3.2009, a learned single<\/p>\n
Judge of this Court after considering the rival contentions passed the<\/p>\n
following interim order:\n<\/p>\n
                “Although this is a common order in the two writ
\n       petitions, Exhibits referred to in this order are as obtaining
\n       in W.P.(C)No.8915 of 2009. The petitioners in these two<\/p>\n
WP(C).Nos.5512 & 5606\/2010            3<\/span><\/p>\n
       writ petitions are S.S.I.Units, who have submitted tenders
\n       for supply of medicines pursuant to notification inviting
\n       tenders floated by the 1st respondent Public Sector
\n       Undertaking. They have been exempted from the condition
\n       of submitting Earnest Money Deposit for the tender. They
\n       have been awarded the tender.          Now they have been
\n       directed to furnish security deposit as provided under the
\n       conditions of tender and to execute an agreement.
\n       According   to   the   petitioners,  by   virtue  of   Ext.p6
\n       Government Order, they are exempted from furnishing
\n       security deposit and Earnest Money Deposit.               The
\n       petitioners, therefore, seek an interim order directing the
\n       1st respondent to permit the petitioners to execute the
\n       agreement without insisting on furnishing security deposit.\n<\/p><\/blockquote>\n
                2. Sri.M.Ajay takes notice on behalf of the 1st
\n       respondent. The learned Government Pleader takes notice
\n       on behalf of the other respondents. The learned counsel for
\n       the 1st respondent submits that Clause (c) of Ext.P6 is not
\n       applicable to Public Sector Undertakings that are working
\n       on competitive basis and since the 1st respondent is a Public
\n       Sector Undertaking working on a competitive basis, the
\n       conditions of Ext.P6 are not applicable to the notification
\n       inviting tenders floated by the 1st respondent. He would
\n       further contend that the Earnest Money Deposit has been
\n       waived not as per Ext.P6, but in accordance with the tender
\n       conditions.\n<\/p><\/blockquote>\n
                3. In answer to the same, the petitioners point out
\n       that the very question as to whether the 1st respondent is a
\n       Public Sector Undertaking working on a competitive basis
\n       was the subject matter of a clarification pursuant to Ext.p12
\n       letter addressed by one of the petitioners to the
\n       Government, to which the Government replied by Ext.p13
\n       that the 1st respondent is a service organization of
\n       Government of Kerala, which does not undertake any sales
\n       or compete in open market and therefore is not a
\n       competitive Public Sector Undertaking.\n<\/p><\/blockquote>\n
                4. The learned counsel for the 1st respondent
\n       submits that in view of Ext.P13, the 1st respondent has
\n       taken up the matter with the Government and the
\n       Government is yet to give reply to the same.\n<\/p><\/blockquote>\n
                5. I have heard both sides.       In the facts and<\/p>\n
WP(C).Nos.5512 & 5606\/2010           4<\/span><\/p>\n
       circumstances of the case, I pass the following interim
\n       order:\n<\/p><\/blockquote>\n
                The 1st respondent shall permit the petitioners to
\n       execute the agreement provisionally without insisting on
\n       furnishing of security deposit, which shall be subject to
\n       further orders of this Court.   In the meanwhile, the 2nd
\n       respondent shall take a final decision in the matter, as to
\n       whether the 1st respondent is a competitive Public Sector
\n       Undertaking, within a period of two weeks from the date of
\n       receipt of a copy of this order. This order shall be served
\n       by the 1st respondent before the 2nd respondent for
\n       compliance.”\n<\/p><\/blockquote>\n
Pursuant to the said direction, the State Government heard the<\/p>\n
parties to the aforesaid writ petitions, the representative of the<\/p>\n
Corporation and the representatives of the Industries and Finance<\/p>\n
Departments and passed Ext.P3 order dated 13.5.2009 holding that<\/p>\n
the Corporation is a competitive public sector undertaking and not a<\/p>\n
service organization and therefore it is not liable to grant the benefits<\/p>\n
contemplated in Ext.R3(4) Government order dated 27.8.2008 which<\/p>\n
was produced and marked as Ext.P6 in W.P.(C)No.8915 of 2009<\/p>\n
referred to above.\n<\/p>\n
            4. After Ext.P3 order was passed, the Corporation issued<\/p>\n
Ext.P2 tender notice inviting tenders for the supply of drugs and<\/p>\n
supplies to the Corporation for the period from 1.4.2010 to<\/p>\n
31.3.2011. The sale of the tender documents was to commence on<\/p>\n
7.1.2010 and to close at 5 p.m. on 3.2.2010.              The last date<\/p>\n
stipulated for submission of tenders was 11 a.m. on 4.2.2010 and<\/p>\n
WP(C).Nos.5512 & 5606\/2010         5<\/span><\/p>\n
the tenders were to be opened at 11.30 a.m. on 4.2.2010 in the<\/p>\n
head office of the Corporation. In Ext.P2 tender notice, in paragraph<\/p>\n
3(i) it was provided that price preference not exceeding 5% for<\/p>\n
Domestic Micro, Small and Medium Enterprises and for State\/Central<\/p>\n
Public Sector Undertakings shall be available only for products<\/p>\n
manufactured by them within the State of Kerala. In the note to<\/p>\n
paragraph 3(i) it was stipulated that `Domestic, Micro, Small and<\/p>\n
Medium Enterprises’ means industrial units as classified in clause 7<\/p>\n
(1) of chapter III of the Micro, Small and Medium Enterprises<\/p>\n
Development Act, 2006 which manufactures the goods within the<\/p>\n
State and are registered with the competent authority of the<\/p>\n
Industries and Commerce Department of Government of Kerala.          In<\/p>\n
paragraph 7 of Ext.P2 it was stipulated that State micro, small and<\/p>\n
medium enterprises registered with Government of Kerala are<\/p>\n
exempted from remittance of Earnest Money Deposit.        In paragraph<\/p>\n
10 of Ext.P2 tender notice it was stipulated that tenders will be<\/p>\n
evaluated with reference to various criteria and that the rate per unit<\/p>\n
(landed price) will    be the criteria for determining the     L1 rate<\/p>\n
(Lowest rate).     It was also stipulated that the evaluation and<\/p>\n
comparison shall include 5% price preference for domestic small<\/p>\n
scale industrial units and State\/Central public sector undertakings for<\/p>\n
WP(C).Nos.5512 & 5606\/2010         6<\/span><\/p>\n
products manufactured by them within the State of Kerala.           In<\/p>\n
paragraph 3(vi)(a) it was stipulated that at any time prior to the date<\/p>\n
of submission of tender, the tender inviting authority (the<\/p>\n
Corporation) may, for any reason, or as per directions of the<\/p>\n
Government, modify the condition in the tender documents by an<\/p>\n
amendment and that such amendment will be binding on all<\/p>\n
prospective tenderers.\n<\/p>\n
            5. Pursuant to Ext.P2 tender notice, the petitioners,<\/p>\n
additional respondents 3 to 10 and others submitted tenders.<\/p>\n
However, before the last date stipulated for sale of tender<\/p>\n
documents, the Government issued Ext.P4 order dated 2.2.2010<\/p>\n
directing that 10% price preference will be extended to small scale<\/p>\n
industries in Kerala as ordered in Ext.R3(4) Government order dated<\/p>\n
27.8.2008 in the tenders floated by the Corporation for procurement<\/p>\n
of drugs and supplies including the tender due for opening on<\/p>\n
4.2.2010, as a special case.        The Managing Director of the<\/p>\n
Corporation thereupon issued Ext.P5 corrigendum dated 3.2.2010<\/p>\n
amending clause 3(i) of Ext.P2 and sub clause 2 to clause 10 of<\/p>\n
Ext.P2 wherein it was stipulated that Domestic Micro, Small and<\/p>\n
Medium Enterprises and State\/Central Public Sector Undertakings<\/p>\n
shall be entitled to 10% price preference for drugs manufactured by<\/p>\n
WP(C).Nos.5512 & 5606\/2010           7<\/span><\/p>\n
them within the State of Kerala. In view of the said amendment, the<\/p>\n
last date for sale of tender documents was postponed to 19.2.2010<\/p>\n
and the last date for receipt of tenders and opening of tenders was<\/p>\n
postponed to 20.2.2010. It was ordered that all other conditions in<\/p>\n
the tender notification shall stand unaltered. This writ petition was<\/p>\n
thereupon filed challenging Exts.P4 and P5 and seeking a direction to<\/p>\n
the Corporation to proceed with the tender on the basis of the<\/p>\n
conditions incorporated in Ext.P2. It is contended that Ext.P4 is a<\/p>\n
non-speaking order, that it does not give any reason for deviating<\/p>\n
from Ext.P3 and that it is arbitrary and illegal. The petitioners have<\/p>\n
also prayed for a direction to the respondents to consider whether<\/p>\n
only 20 to 25% of the order could be granted to small scale industrial<\/p>\n
units\/public sector undertakings and to award the rest of the orders<\/p>\n
to the lowest bidders in order to save public money.<\/p>\n
            6. A counter affidavit dated 25.3.2010 has been sworn to<\/p>\n
by the Under Secretary to Government, Health and Family Welfare<\/p>\n
Department on behalf of the first respondent. Paragraphs 6 to 10<\/p>\n
thereof are extracted below for easy reference:<\/p>\n
               “6.     Subsequently,    Kerala    Pharmaceutical
\n         Manufacturer’s Association represented by its Secretary
\n         submitted a representation to Government stating that as
\n         per   G.O.(P)No.385\/08\/Fin.    Dated   27\/08\/08,    price
\n         preference of 5% that was admissible to Small Scale Units
\n         has been increased to 10% and all Small Scale Units
\n         registered with store Purchase Department of Kerala have<\/p>\n
WP(C).Nos.5512 & 5606\/2010            8<\/span><\/p>\n
        been exempted by EMD bid security and security deposit.
\n        The Association further represented that this benefits was
\n        not extended by Kerala Medical Services Corporation
\n        Limited in the tender for 2009-2010 and that the
\n        authorities promised to give them the above benefits from
\n        the tender for the year 2010-11 onwards. The association
\n        has also stated that if the above concessions are extended
\n        the total amount involved would be very meager as total
\n        business done by the Small Sale Units is less than 10% of
\n        the total purchase done by the Kerala Medical Services
\n        Corporation Limited in a year and further that these
\n        concessions are a great help to their units to become
\n        more competitive.\n<\/p>\n
               7. It is submitted that Government had re-\n<\/p>\n
        examined the matter in detail and come to the conclusion
\n        that the Kerala Medical Services Corporation Limited is
\n        now in a better position financially to comply with
\n        Government      Order     dated   27\/08\/08    and    hence
\n        Government as per Ext.P4, ordered to extend 10% price
\n        preference to Small Scale Units in Kerala in line with G.O.
\n        (P)No.385\/08\/Fin. dated 27\/08\/08, in the tenders floated
\n        by the Kerala Medical Services Corporation Limited for the
\n        procurement of Drugs and Supplies for the year 2010-
\n        2011 including in the tender which was due for opening on
\n        04\/02\/2010.\n<\/p>\n
               8. The above order was issued after considering the
\n        fact that Small Scale Units in the State have to be
\n        provided price preference since they are competing with
\n        the medium and large scale industries with large
\n        infrastructure facilities, capacity to mobilize funds and
\n        manpower.       Originally   the   proposal  of  industries
\n        Department in Government was for restoration of the
\n        benefit of 15% price preference to the Small Scale Units
\n        within the State and to exempt these Units from remitting
\n        of EMD, bid security and security deposit. However, after
\n        thorough consideration of all aspects, Government in G.O.
\n        (P)No.385\/08\/Fin. Dated 27\/08\/08 ordered to enhance the
\n        price preference from 5% to 10% till 31\/03\/12.\n<\/p>\n
               9. The Kerala Medical Services Corporation Limited
\n        is provided Rs.130 crore in the year 2009-10 as grant by
\n        Government of Kerala for purchase of drugs and supplies
\n        for Government Hospitals.          In the year 2010-11,<\/p>\n
WP(C).Nos.5512 & 5606\/2010            9<\/span><\/p>\n
        Government of Kerala has budgeted Rs.145 crore to be
\n        given to Kerala Medical Services Corporation Limited for
\n        procurement of drugs.           Kerala Medical Services
\n        Corporation Limited after procuring drugs and supplies
\n        through open tender supplies them free of cost to
\n        Government Hospitals, based on their requirement.
\n        Kerala Medical Services Corporation Limited thus acts as a
\n        procurement arm of Government of Kerala, registered as
\n        a wholly owned company of Government of Kerala under
\n        the Companies Act.     Kerala Medical Services Corporation
\n        Limited is performing a role similar to that was being
\n        performed by the Central Purchase Committee (CPC) for
\n        purchase of drugs and supplies for Government Hospitals,
\n        before Kerala Medical Services Corporation Limited was
\n        incorporated. Thus, it is apparent that it will be incorrect
\n        to assert that now KMSCL is running as a competitive
\n        Public Sector Undertaking. Earlier, when Kerala Medical
\n        Services Corporation Limited was incorporated, it was
\n        envisaged that      Kerala Medical Services Corporation
\n        Limited would work as a Competitive Public Sector
\n        Undertaking. However, as far as procurement of drugs
\n        and supplies using Government grant and distributing
\n        them to Government Hospitals is concerned, operation of
\n        Kerala Medical Services Corporation Limited cannot be
\n        termed, as being run as competitive Public Sector
\n        Undertaking. Thus, on re-examination Government came
\n        to the view that Government Order No.385\/08\/Fin. dated
\n        27\/08\/08 should apply to         Kerala Medical Services
\n        Corporation Limited and that 10% price preference to
\n        SSI’s decided in the said Government Order should be
\n        extended by Kerala Medical Services Corporation Limited.<\/p>\n
              10. Government reviewed the clarification issued in
\n        G.O.(Ms)No.112\/09\/H & FWD dated 13\/05\/09 and came
\n        to the conclusion that the       Kerala Medical Services
\n        Corporation Limited, is not a Public Sector Undertaking
\n        working on competitive basis at present and hence Kerala
\n        Medical Services Corporation Limited has to comply with
\n        the Government Orders from time to time. The matter
\n        cannot be left in a state of uncertainty since it will lead to
\n        a crisis in the hospitals once the present stocks of
\n        medicines are consumed.       What is ordered in Ext.P4
\n        Government Order is that         Kerala Medical Services
\n        Corporation Limited will extend 10% price preference to
\n        Small Scale Units for the tender which was due for<\/p>\n
WP(C).Nos.5512 & 5606\/2010          10<\/span><\/p>\n
         opening on 4th February, 2010.”\n<\/p>\n
The substance of the contention raised by the first respondent is that<\/p>\n
Ext.P4 was issued with a view to promote small scale industrial units,<\/p>\n
that the Government have allocated Rs.145 crores to the Corporation<\/p>\n
for procurement of drugs which is Rs.15 lakhs more than the<\/p>\n
allocation made during the previous year 2009-2010 and that<\/p>\n
adequate funds are available at the disposal of the Corporation to<\/p>\n
procure drugs even if 10% price preference is given to small scale<\/p>\n
industrial units manufacturing drugs within the limits of Kerala. It is<\/p>\n
also contended that the Government have reviewed Ext.P3 and come<\/p>\n
to the conclusion that the Corporation is not a public sector<\/p>\n
undertaking working on a competitive basis at present and therefore<\/p>\n
the Corporation has to comply with the Government orders issued<\/p>\n
from time to time.\n<\/p>\n
            7. Additional respondents 3 to 10 have in their application<\/p>\n
for impleadment justified the stand taken by the Government in<\/p>\n
Ext.P4. Relying on Ext.R3(3) order dated 13.10.2005, Ext.R3(4)<\/p>\n
order dated 27.08.2008 and Ext.R3(5) letter dated 23.1.2009, it is<\/p>\n
contended that the price preference given to small scale industrial<\/p>\n
units which was originally fixed at 5% in Ext.R3(3) order dated<\/p>\n
13.10.2005 was raised to 10% by Ext.R3(4) dated 27.08.2008 and<\/p>\n
WP(C).Nos.5512 & 5606\/2010        11<\/span><\/p>\n
that the said concession is available to small scale industrial units<\/p>\n
even in respect of the tenders invited by the Corporation for the<\/p>\n
reason that it is not a public sector undertaking working on a<\/p>\n
competitive basis.\n<\/p>\n
              8. I heard Sri.M.Ramesh Chander, learned counsel<\/p>\n
appearing for the petitioners, Smt.Smitha Sukumaran, learned<\/p>\n
Government Pleader appearing for the first respondent, Sri.M.Ajay,<\/p>\n
learned standing counsel appearing for the second respondent<\/p>\n
Corporation and Sri.Anil    D Nair, learned counsel appearing for<\/p>\n
additional respondents 3 to 10. I have also considered the pleadings<\/p>\n
and the materials on record. Sri.M.Ramesh Chander, learned counsel<\/p>\n
for the petitioners contended that the Government have not given<\/p>\n
any reason in Ext.P4 when it directed the Corporation to give 10%<\/p>\n
price preference to small scale industrial units manufacturing drugs<\/p>\n
within the State of Kerala. The learned counsel contended that the<\/p>\n
Government have in Ext.P3, after an elaborate consideration of<\/p>\n
various aspects of the matter, held in categorical terms that the<\/p>\n
Corporation is a competitive public sector undertaking and not a<\/p>\n
service organization and that in the absence of any reason justifying<\/p>\n
the change in the opinion of the Government, Ext.P4 is liable to be<\/p>\n
struck down as an arbitrary exercise of power. The learned counsel<\/p>\n
WP(C).Nos.5512 & 5606\/2010           12<\/span><\/p>\n
contended that small scale industrial units had been given 5% price<\/p>\n
preference even in Ext.P2 and that certain other benefits like<\/p>\n
dispensing with earnest money deposit had also been extended to<\/p>\n
them. The learned counsel also contended that if 10% price<\/p>\n
preference is extended to small scale industrial units, it will adversely<\/p>\n
affect public interest.    The learned counsel submitted that if for<\/p>\n
example the petitioners are able to supply 10 strips of Crocin tablets<\/p>\n
for Rs.100\/-, the Corporation will have to spend Rs.110\/- to buy it<\/p>\n
from a small scale industrial unit and that for the said amount,<\/p>\n
persons like the petitioners will be able to supply 11 strips in the place<\/p>\n
of 10.   Relying on Ext.P1 the learned counsel for the petitioners<\/p>\n
contended that the Corporation was established to harness resources<\/p>\n
for timely procurement and prompt distribution of medicines in health<\/p>\n
care institutions in an efficient, transparent and cost effective way<\/p>\n
thereby ensuring full utilization of the funds. He submitted that if the<\/p>\n
stand of the Government is accepted, it will defeat the very purpose for<\/p>\n
which the Corporation was established. Per contra, learned counsel<\/p>\n
for the respondents contended that small scale industrial units were<\/p>\n
given 10% price preference with a view to promote small scale<\/p>\n
industrial units and that the Government have a social obligation to<\/p>\n
promote the welfare of workers employed in such small scale<\/p>\n
WP(C).Nos.5512 & 5606\/2010            13<\/span><\/p>\n
industrial units. The learned counsel went to the extent of stating<\/p>\n
that the Corporation is flush with funds and therefore it does’nt<\/p>\n
matter if additional expenditure of 10% is incurred by the<\/p>\n
Corporation for purchasing medicines which are to be distributed to<\/p>\n
patients availing the services of Government hospitals and<\/p>\n
dispensaries.\n<\/p>\n
              9. Ext.P1 discloses that the Corporation was established<\/p>\n
with a view to harness resources for the timely procurement and<\/p>\n
prompt distribution of medicines in health care institutions in an<\/p>\n
efficient, transparent and cost effective way thereby ensuring full<\/p>\n
utilization of the funds. Paragraph 3 thereof reads as follows:<\/p>\n
                “3. Government are spending roughly an
\n         amount of Rs.120 crores annually for purchase of
\n         medicines and other medical items excluding diet for
\n         health care institutions under Directorate of Health
\n         Services and Directorate of Medical Education. For
\n         the current year (2007-08), the allotment for
\n         purchase of medicines is roughly Rs.120 crores under
\n         various heads of accounts. Apart from the budgetary
\n         allocation, funds available from Hospital Development
\n         Committees      (HDCs).     LSGIs    and   emergency
\n         allotments are used for purchase of medicines and
\n         medical items in hospitals.         Harnessing these
\n         resources for timely procurement and prompt
\n         distribution of all these items in a most efficient,
\n         transparent and cost effective way through an
\n         effective    computerized     system   ensuring     full
\n         utilization of funds, will be the main objective of the
\n         new Corporation.”\n<\/p><\/blockquote>\n
It is evident from Ext.P1 that the Corporation was established to<\/p>\n
WP(C).Nos.5512 & 5606\/2010            14<\/span><\/p>\n
ensure procurement and distribution of medicines and supplies in a<\/p>\n
cost effective way. The Government have in Ext.P3 considered the<\/p>\n
purpose for which the Corporation was established and after<\/p>\n
ascertaining the views of the Industries and Finance Departments<\/p>\n
and after hearing the writ petitioners in W.P.(C)Nos.8915 and 8940<\/p>\n
of 2009 who are party respondents herein, held in categorical terms<\/p>\n
as follows:\n<\/p>\n
              “7. The objectives of the     Kerala Medical Services
\n        Corporation    Limited   are    enumerated      in  G.O.(P)
\n        No.448\/07\/H&FWD dated 1\/11\/07, read as 1st paper above,
\n        by which the Corporation was set up. One of the main
\n        objectives of the     Kerala Medical Services Corporation
\n        Limited is to procure and stock quality drugs and medicines
\n        at competitive prices. The Corporation has been set up as
\n        a company under the Companies Act, 1956 and not as a
\n        society under the Charitable Societies Act. Based on the
\n        mandates given in the Memorandum of Association, the
\n        Corporation can sell, supply, distribute or deliver all kinds
\n        and varieties of generic and patented medicines, medical
\n        supplies, surgical accessories etc. to Government Hospitals
\n        and institutions in the private sector.        The objects
\n        incidental or ancillary to attainment of the main objects
\n        permits the Corporation to enter into partnership joint
\n        venture, reciprocal concessions or other ways with any
\n        person, firm association or body corporate. Kerala Medical
\n        Services Corporation Limited is procuring drugs and
\n        supplies at the most competitive rates through competitive
\n        tenders invited.\n<\/p><\/blockquote>\n
              8. In the sittings of the Estimates Committee of the
\n        Kerala Legislative Assembly held at the Medical College,
\n        Kozhikode on 28.08.2008 and in the meeting of the
\n        Assurance Committee of the House held at the legislature
\n        complex on 2\/2\/2009 it was pointed out that the
\n        procurement cost of the medicines purchased by the Kerala
\n        Medical Services Corporation Limited for treatment of
\n        cancer, kidney diseases, heart diseases are very low<\/p>\n
WP(C).Nos.5512 & 5606\/2010           15<\/span><\/p>\n
       compared to the market price of the same. Since the poor
\n       patients cannot afford to buy these costly medicines from
\n       the open market paying huge amounts, the above
\n       Committee had suggested that Kerala Medical Services
\n       Corporation Limited should open retail sales outlets at least
\n       in all Medical College Hospitals and in District Hospitals in
\n       the State. The Kerala Medical Services Corporation Limited
\n       is contemplating starting retail sales outlets as suggested
\n       by the Committees of the Kerala Legislative Assembly.\n<\/p><\/blockquote>\n
              9. In this connection it is also pertinent to point out
\n       that as per the decisions of the Board of Directors of the
\n       Corporation, in all the tenders floated by the Corporation
\n       5% price preference is allowed to State SSI Units and the
\n       annual turn over conditions of R.2 (two) crores was
\n       reduced to Rs.50 lakh for SSIs as an exemption. This was
\n       in suo motu fulfillment of the Corporation’s social
\n       obligations to small scale industries functioning in the
\n       State. If 10% price preference is allowed to SSI Units, the
\n       Corporation will not be able to procure medicine at
\n       competitive rates for the use in the Government Hospitals.
\n       Protection of the interests of the SSI units should not and
\n       cannot be at the expense of the poor people depending the
\n       services of the Government Hospitals. Security deposit is
\n       insisted from SSI Units also as to safeguard against
\n       unsatisfactory   performance     or   violation  of  contract
\n       agreement by the supplier. It is pointed out that during
\n       the previous year there was failure on the part of one SSI
\n       Unit in giving supply as per the Schedule in the purchase
\n       order placed.     The Kerala Medical Services Corporation
\n       Limited had to arrange alternate purchase and could
\n       recover the additional cost involved in the alternate
\n       purchase of medicines from the defaulted supplier, only
\n       because there was sufficient security deposit available with
\n       the Corporation. If no security deposit is insisted from the
\n       suppliers, the Corporation may not be able to realize the
\n       additional expenditure on account of alternate purchase to
\n       provide medicines to public sector hospitals in time.\n<\/p><\/blockquote>\n
              10. The Kerala Medical Services Corporation Limited
\n       has been established exclusively to ensure uninterrupted
\n       supply of medicines and allied products in the health care
\n       institutions in Government Sector in the whole State at the
\n       most competitive rates for the use of the not so affluent
\n       patients, who are mostly depending upon the Government<\/p>\n
WP(C).Nos.5512 & 5606\/2010          16<\/span><\/p>\n
       Institutions.   The Corporation is procuring medicines
\n       adopting a transparent competitive system while also
\n       ensuring quality of the supplies. There is no dispute that
\n       the corporation is a fully Government owned institution in
\n       all respects. However, being a Corporation solely engaging
\n       in procurement and supply of good quality medicines which
\n       are essential for saving the lives of the people, the
\n       Corporation cannot be equated with LSGIs, Development
\n       Authorities, Khadi Board, KSRTC, KSEB, KWA etc. who are
\n       directed to allow some concessions to the SSI Units. It is
\n       very clear that the KMSCL is a PSU working on competitive
\n       basis and is not a service organization and that it is not
\n       liable to allow any concessions to SSI Units as directed in
\n       the Government Order read as 2nd paper above.”\n<\/p><\/blockquote>\n
                                              (emphasis supplied)<\/p>\n
It was in view of the reasons stated above that the Government held<\/p>\n
in Ext.P3 that the Corporation is a competitive public sector<\/p>\n
undertaking. When Ext.P2 tender notice was issued, though as per<\/p>\n
Ext.P3 small scale industrial units were not entitled to any price<\/p>\n
preference    in terms     of   Ext.R3(4) Government order        dated<\/p>\n
27.08.2008, the Corporation extended certain benefits to them by<\/p>\n
which small scale industrial units manufacturing drugs within the<\/p>\n
State of Kerala were given 5% price preference. (vide paragraphs 3<\/p>\n<\/blockquote>\n
(i), 10(1) and 10(2)) They were also exempted from payment of<\/p>\n
earnest money deposit.      The Government thereafter issued Ext.P4<\/p>\n
order extending 10% price preference to small scale industrial units<\/p>\n
in Kerala in the tenders floated by the       Kerala Medical Services<\/p>\n
Corporation Limited, including Ext.P2 tender, as a special case. The<\/p>\n
Government have not in Ext.P4 given any reason justifying the<\/p>\n
WP(C).Nos.5512 & 5606\/2010          17<\/span><\/p>\n
deviation from the stand taken by them in Ext.P3. The Government<\/p>\n
have in Ext.P3 held in categorical terms that protection of the<\/p>\n
interests of small scale industrial units should not and cannot be at<\/p>\n
the expense of the poor people depending upon the services of<\/p>\n
Government hospitals. The Government have in Ext.P3 also noticed<\/p>\n
that in all the tenders floated by the Corporation, the Corporation is<\/p>\n
providing 5% price preference to small scale industrial units in the<\/p>\n
State and that fulfills the Corporation’s social obligation to small scale<\/p>\n
industrial units.    The Government have not given any reason<\/p>\n
justifying the deviation from the stand taken in Ext.P3.      Ext.P4 is in<\/p>\n
my opinion, patently arbitrary. As rightly pointed out by the learned<\/p>\n
counsel for the petitioners, if 10% price preference is extended in<\/p>\n
respect of drugs manufactured by small scale industrial units, the<\/p>\n
Corporation will be able to procure only lesser quantity of drugs. If<\/p>\n
for example, the petitioners have offered 10 strips of Crocin tablets<\/p>\n
for Rs.100\/-, the small scale industrial units which are entitled to<\/p>\n
10% price preference will be able to supply only nine strips. The<\/p>\n
mere fact that the Corporation is flush with funds is therefore not a<\/p>\n
justification to enhance the price preference to be extended to small<\/p>\n
scale industrial units from 5% to 10%. The instant case is one where<\/p>\n
no price preference at all is given to small scale industrial units. As a<\/p>\n
WP(C).Nos.5512 & 5606\/2010         18<\/span><\/p>\n
matter of fact, they were given 5% price preference and also certain<\/p>\n
other benefits.<\/p><\/blockquote>\n
            10. The Government do not appear to had taken into<\/p>\n
account the impact the said order will have on the procurement of<\/p>\n
drugs and resultantly on the availability of cheaper drugs to patients<\/p>\n
who depend on Government hospitals and dispensaries.               The<\/p>\n
Government have in Ext.P3 also stated that the Corporation cannot<\/p>\n
be equated with Local Self Government Institutions, Development<\/p>\n
Authorities, the Khadi Board, the Kerala State Road Transport<\/p>\n
Corporation, the Kerala State Electricity Board and the Kerala Water<\/p>\n
Authority which are bound to follow Ext.R3(3) Government order. In<\/p>\n
Ext.P4 no reason at all is stated as to why the said stand requires to<\/p>\n
be changed. In my considered opinion, in the absence of any reason<\/p>\n
given in Ext.P4 or in the absence of any material to show that the<\/p>\n
Government had any further materials before it when it passed<\/p>\n
Ext.P4, the stand taken by the Government in Ext.P4 cannot be<\/p>\n
sustained. On the materials available, I am of the considered opinion<\/p>\n
that the decision taken by the Government in Ext.P4, to extend 10%<\/p>\n
price preference to small scale industrial units cannot be sustained.<\/p>\n
            11. I shall now consider whether in the view that I have<\/p>\n
taken the steps taken by the Corporation pursuant to Ext.P5<\/p>\n
WP(C).Nos.5512 & 5606\/2010          19<\/span><\/p>\n
corrigendum notice should be set at naught and the Corporation<\/p>\n
should be directed to proceed afresh from the stage immediately<\/p>\n
prior to Exts.P4 and P5. The learned counsel for the Corporation<\/p>\n
brought to my notice that as no interim order restraining the<\/p>\n
Corporation from proceeding with the tender was in force, after<\/p>\n
W.A.Nos.744 and 745 of were disposed of by judgment delivered on<\/p>\n
17.5.2010, the Corporation has in some cases accepted bids made by<\/p>\n
small scale industrial units\/public sector undertakings by giving them<\/p>\n
price preference in excess of 5% and that supply of drugs has also<\/p>\n
commenced. The tender invited by the Corporation is for supply of<\/p>\n
medicines to health care institutions run by the Government which<\/p>\n
cater to the needs of patients who are not affluent. The Corporation<\/p>\n
was also established to supply medicines to health care institutions in<\/p>\n
the Government sector at competitive rates. In such circumstances,<\/p>\n
I am of the opinion that it would not be proper for this Court to<\/p>\n
interfere with the acceptance of bids made by small scale industrial<\/p>\n
units\/public  sector   undertakings    and   orders   placed   by  the<\/p>\n
Corporation with them having regard to the larger public interest. I<\/p>\n
am of the opinion that the interests of justice can be met if in cases<\/p>\n
where Corporation has accepted bids by small scale industrial<\/p>\n
units\/public sector undertakings manufacturing drugs in the State of<\/p>\n
WP(C).Nos.5512 & 5606\/2010          20<\/span><\/p>\n
Kerala by giving them price preference in excess of 5%, such price<\/p>\n
preference is scaled down to a maximum of 5%. In other cases<\/p>\n
where bids have not been accepted, the Corporation shall proceed to<\/p>\n
finalise the tender on the basis of Ext.P2 tender notification, ignoring<\/p>\n
Exts.P4 and P5.\n<\/p>\n
            In the result, I allow the writ petition, quash Ext.P4 order<\/p>\n
and P5 corrigendum notification.       The Corporation is directed to<\/p>\n
proceed further with Ext.P2 tender notification, based on the terms<\/p>\n
and conditions stipulated therein.      If pursuant to Ext.P2 tender<\/p>\n
notification the Corporation has accepted bids by small scale<\/p>\n
industrial units\/public sector undertakings manufacturing drugs<\/p>\n
within the State of kerala by giving them price preference in excess<\/p>\n
of 5%, the Corporation shall give them an opportunity to scale down<\/p>\n
the price quoted by them limiting it to 5% in terms of Ext.P2. In<\/p>\n
other words, small scale industrial units whose tenders had been<\/p>\n
accepted will be entitled only for 5% price preference and payment<\/p>\n
shall be made only on that basis. It is clarified that the award of<\/p>\n
contract already made to the small scale industrial units need be<\/p>\n
reopened only for the said limited purpose. The bids submitted by<\/p>\n
persons other than small scale industrial units, if already accepted,<\/p>\n
shall not be disturbed. It is also clarified that the Corporation need<\/p>\n
WP(C).Nos.5512 & 5606\/2010         21<\/span><\/p>\n
not offer an opportunity to persons who have quoted a rate lower<\/p>\n
than small scale industrial units and to whom the contract has been<\/p>\n
awarded and that the Corporation need only scale down the offer<\/p>\n
made by the small scale industrial units whose bid has been accepted<\/p>\n
limiting the price preference to 5%. The entire exercise shall be<\/p>\n
carried out within one month from today. If any one of the small<\/p>\n
scale industrial units which have availed the benefit of price<\/p>\n
preference beyond 5% fails to scale down their offer to a maximum<\/p>\n
of 5%, it will be open to the Corporation to cancel such tenders and<\/p>\n
to award the work to other tenderers.\n<\/p>\n
W.P.(C)No.5606 of 2010<\/p>\n
            The issue raised in this writ petition is covered by the<\/p>\n
decision of this Court in W.P.(C)No.5512 of 2010. The writ petition is<\/p>\n
accordingly disposed of with the observation that the judgment in<\/p>\n
W.P.(C)No.5512 of 2010 will govern this case also.<\/p>\n
                                         P.N.RAVINDRAN
\n                                              Judge<\/p>\n
TKS<\/p>\n","protected":false},"excerpt":{"rendered":"
Kerala High Court M\/S.Rkg Pharma Pvt.Ltd vs State Of Kerala on 23 June, 2010 IN THE HIGH COURT OF KERALA AT ERNAKULAM WP(C).No. 5512 of 2010(L) 1. M\/S.RKG PHARMA PVT.LTD, 12TH MILE STONE, … Petitioner 2. M\/S.UNICURE (INDIA)PVT.LTD,C-22&23, 3. M\/S.VIVEK PHARMACHEM (INDIA)LTD., Vs 1. STATE OF KERALA, REPRESENTED BY THE … Respondent 2. THE KERALA […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[8,21],"tags":[],"class_list":["post-24420","post","type-post","status-publish","format-standard","hentry","category-high-court","category-kerala-high-court"],"yoast_head":"\nM\/S.Rkg Pharma Pvt.Ltd vs State Of Kerala on 23 June, 2010 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/ms-rkg-pharma-pvt-ltd-vs-state-of-kerala-on-23-june-2010\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"M\/S.Rkg Pharma Pvt.Ltd vs State Of Kerala on 23 June, 2010 - 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