The appeal arises out of an order of June 26, 2020 by which an order of December 12, 2019 disposing of a writ petition has been recalled.
The appellant is an oil company. In the usual course, the appellant and other oil companies engage transporters for the purpose of ferrying petroleum products, including gas cylinders, across the country. A part of the transport contracts are awarded to enterprises which are registered as micro or small enterprises.
The appellant refers to the Micro, Small and Medium Enterprises Development Act, 2006 and places, inter alia, Sections 7 and 8 there from. Section 7 pertains to the classification of enterprises as micro or small or medium, primarily depending on the investment in the plant and machinery made by the relevant enterprise. Section 8 of the said Act pertains to the memorandum of such enterprise. Section 8(2) of the Act authorises the Central Government to notify the form of memorandum and the procedure of its filing upon obtaining the recommendations of a statutory advisory committee. Section 8(4) of the Act empowers every State Government to specify, by notification, the authority with which a micro or small enterprise may file the memorandum.
As recorded above, this matter pertains only to micro and small enterprises. Under the policy adopted by the Central Government, oil companies have to award a certain percentage of the transport contracts to micro and small enterprises. For such purpose the Udyog Aadhar Memorandum (UAM) is of paramount importance. In terms of the notifications issued by the Central Government, the self-declaration made by an enterprise has to be accepted. However, in respect of micro and small enterprises, the District Industries Centre (DIC) in every district is responsible to inquire into the veracity of the particulars furnished by a micro or small enterprise.
There is no dispute that based on the self-declaration furnished by the writ petitioner in this case, its assertion as a micro or small enterprise was accepted at face value by the appellant and a transport contract has been awarded in favour of the writ petitioner which is still subsisting. It appears that sometime in 2019 it was discovered that some of the enterprises which were seeking to pass off as micro or small enterprises were not qualified to be identified as such, inter alia, in view of much larger quantum of investment involved in such enterprises. According to the appellant, the oil companies, upon receiving such information, embarked on an exercise to verify the credentials of the contractors who had obtained transport contracts on the basis of their status as micro and small enterprises. A notice was issued on December 4, 2019 by the appellant to the writ petitioner calling upon the writ petitioner to demonstrate that it was indeed a micro or small enterprise. This necessarily required the writ petitioner to approach the relevant District Industries Centre. An initial reply to the notice of December 4, 2019 issued by the writ petitioner revealed that a physical verification of the writ petitioner's enterprise had been conducted by the relevant DIC, but in view of the other pressing business of the DIC, such DIC had not found time to issue an appropriate certificate to the writ petitioner.
Since the writ petitioner apprehended that unless the writ petitioner satisfied the appellant herein within the time stipulated in the show cause notice of December 4, 2019 that the writ petitioner was, indeed, a micro or small enterprise its contract would be terminated, a writ petition was carried to this Court. Such petition, WP No. 23175 (W) of 2019, was disposed of on December 12, 2019 in the apparent presence of the appellant herein and the relevant District Industries Centre. The Court perceived at such stage that it was incumbent on the relevant DIC to issue an appropriate certificate. The Court fixed the time within which the certificate would be issued by the DIC and set aside the show cause notice for any fresh action to be taken by the appellant herein upon the certificate being furnished by the writ petitioner to the appellant. It appears that the appellant accepted the order of December 12, 2019 and expected an appropriate certificate to be issued by the relevant DIC to clarify the status of the writ petitioner. The appellant says that, to its surprise, it was served two applications filed by the State and by the writ petitioner seeking modification of the order of December 12, 2019. It must be recorded here that a minor correction was carried out in the order of December 12, 2019 by a further order of December 19, 2019 and the appellant has no grievance in such regard.
The State's application on behalf of the relevant DIC was to the effect that it was not the job of any DIC to physically verify the assets possessed by any enterprise or to physically ascertain the quantum of investment involved in such enterprise. The State sought to suggest that advocate who had represented the DIC at the hearing of December 12, 2019 may not have been authorised to do so on behalf of the State or the DIC and, in any event, inappropriate submission on questions of law had been made on behalf of the DIC which was taken cognizance of by the Court while passing the relevant order.
Several notifications issued by the Central Government and notifications issued by the State pursuant thereto or in connection with the authority of the DICs in accordance with the mandate of the said Act of 2006 have been referred to by the appellant and by the State. The substance of the State's submission is that it does not have the infrastructure or wherewithal to physically verify the assets and investments of every micro and small enterprise. The State asserts the lack of resources on its part to be able to verify the particulars furnished in the UAM by the relevant enterprise in every case. According to the State, the invoice value and other particulars to demonstrate the extent of investment in a particular enterprise are required to be submitted by every enterprise to statutory authorities like the tax authorities and it is always open to the Union of India or any agency of the Union of India to verify the particulars from the tax authorities or the websites where such particulars are uploaded by the enterprises. However, the State also submits that it is the leading state in terms of registered micro and small enterprises and the State does not wish to shirk its responsibility as contemplated in the Act of 2006. The State only indicates that it may be impossible for the State or any DIC to physically inspect and inquire into the assets and investments of every micro and small enterprise.
Several grounds have been urged on behalf of the appellant, but the appellant has unconditionally withdrawn ground No.XXII indicated in the Memorandum of Appeal. It is understandable that such ground has been withdrawn; particularly, in these Covid times when Benches have been assembled on an emergency basis.
The Union says that since this particular writ petition had already been disposed of, the learned Single Judge erred in referring to interim orders passed in other similar writ petitions, which were instituted later in point of time or, in any event, taken up for hearing after the present writ petition had already been disposed of. The submission of the appellant is that once the writ petition had been disposed of, the final order deserved greater sanctity than was accorded to it in order impugned herein.
There is no doubt that an inquiry as to the veracity of the details and particulars furnished by an enterprise regarding its status as a micro enterprise or small enterprise has to be conducted by the relevant DIC. There is no escape from such obligation of the relevant DIC. Equally, it may be possible that DICs are not equipped with the manpower or infrastructure to conduct a physical inquiry in every case. Thus, a standard operating procedure (SOP) has to be evolved by the State where an inquiry will be conducted as to the particulars furnished by a particular enterprise based on the details uploaded by the relevant enterprise on the websites of other authorities; but in the odd case of, say, one in twenty or one in fifty, there would be a physical verification. If an SOP of this kind were to be put into place, it may suffice for the purpose of checking the odd applicant who might furnish erroneous data to obtain the benefit of the classification without being so entitled.
It is imperative that the credentials furnished by the enterprises be accurate and also be inquired into. Government contracts are being awarded on a preferential basis to a class of enterprises and persons who do not qualify to fall within such class must not be permitted to avail of such benefit. Towards such end, the exercise undertaken by the appellant cannot be questioned. At the same time, merely because there is some suspicion in the air, it cannot be presumed that this writ petitioner had furnished erroneous details to obtain its certificate as a micro or small enterprise. Thus, the verification or inquiry by the relevant DIC becomes significant.
Without the direction contained herein as to the physical verification being used as a precedent in other similar cases, the relevant DIC in this case will physically verify the quantum of investment and other particulars which had been furnished by the writ petitioner at the time that it applied for its certification as a micro or small enterprise. The verification will be conducted on the basis of the rules that obtained at the time the application was made and not by the present rules. Upon conduct of such verification, the relevant DIC will call upon the writ petitioner to either amend its memorandum or cancel its memorandum or require it to take no action at all. However, a written communication in such regard must be issued by the relevant DIC to the writ petitioner within six weeks from date.
For a period of eight weeks from date, no coercive action will be taken by the appellant to terminate the contract subsisting in favour of the writ petitioner. The writ petitioner will be obliged to forward the communication received f
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rom the relevant DIC, consequent upon the inquiry being conducted, within a week of the receipt thereof to the appellant. The appellant will be entitled to take appropriate action thereupon in accordance with law. Since the physical verification in this case is directed, as a one-off case, to be conducted by the DIC, the appellant will thereafter not conduct any physical verification of the quantum of investment or other particulars pertaining to the writ petitioner. However, if the appellant finds any glaring error in the inquiry conducted by the DIC, the appellant will be entitled to bring such perceived error to the notice of the DIC for appropriate action to be taken thereafter in accordance with law. The order impugned dated June 26, 2020 is modified and set aside in most parts. The writ petition stands disposed of. FMA 870 of 2020 (MAT 485 of 2020) together with CAN 4187 of 2020, CAN 4198 of 2020, CAN 4200 of 2020 stand disposed of. There will be no order as to costs. Urgent certified website copies of this order, if applied for, be delivered to the parties, upon compliance of all necessary formalities.