# Thoughtsol Infotech Pvt. Ltd v. Union of India & Ors

- **Citation:** (2025) 3 ILRA 602
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2025-03-10
- **Case number:** Writ C No. 605 of 2025
- **Bench:** Ashwani Kumar Mishra, Vipin Chandra Dixit
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/thoughtsol-infotech-pvt-ltd-v-union-of-india-ors-53228
- **Pages:** 32

## Headnote

A. Civil Law -MSMED Act.2006- Section
11-Public Procurement Policy,2012-MSME
Preference-Cloud Service Contract-Nature
of
Contract-Preferential
Treatment-The
petitioner challenged the award of a cloud
service
contract
by
the
Directorate
General of Hydrocarbons to the third
respondent, a registered MSE, despite the
petitioner being the lowest bidder-The
challenge was based on the assertion that
the third respondent was not the actual
provider of the core cloud infrastructure,
which was to be delivered by Amazon Web
Services
and
that
the
respondent
functioned merely as intermediary-Held,
the contract included substantial supply of
goods in addition to services, and thus
composite in nature-The MSE preference
under the Public Procurement Policy 2012
is available only where the goods and
services are produced by the MSE itselfTraders, Intermediaries and agents were
excluded from the benefits of MSE policyThe third respondent could not validly
claim MSE benefits as it did not produce
the cloud services or infrastructure but
merely facilitated AWs's services-Thus,
the award of contract to the third
respondent under the guise fo MSE
preference was arbitrary and contrary to
the MSME policy, and the petitioner was
entitled to relief.(Para 1 to 92)

The writ petition is allowed. (E-6)

## Text

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602 INDIAN LAW REPORTS ALLAHABAD SERIES
actually were) and conveniently stating that
all relevant persons (sibling) of Ruda Singh
were dead without giving any date of death,
it all piles upto create doubt and suspicion
which could not be explained or dispelled
by cogent evidence, hence, the findings of
the
Consolidation
Officer
and
the
Settlement Officer of Consolidation cannot
be sustained and for all the reasons, the
Deputy Director of Consolidation has
rightly rejected the same.

71. In view of the aforesaid
detailed discussions, this Court is of the
clear opinion that the order passed by the
Deputy Director of Consolidation dated
17.09.2024 cannot be termed as bad in the
eyes of law, hence, the petition lacks merit
and is accordingly dismissed. The interim
order, stands vacated. Costs are made easy.
----------
(2025) 3 ILRA 602
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 10.03.2025

BEFORE

THE HON'BLE ASHWANI KUMAR MISHRA, J.
THE HON'BLE VIPIN CHANDRA DIXIT, J.

Writ C No. 605 of 2025

Thoughtsol Infotech Pvt. Ltd. ...Petitioner
Versus
Union of India & Ors. ...Respondents

Counsel for the Petitioner:
Sushant

Counsel for the Respondents:
Archana Singh, Naman Agarwal, Varad Nath,
Vivek Kumar Singh, A.S.G.I.

A. Civil Law -MSMED Act.2006- Section
11-Public Procurement Policy,2012-MSME
Preference-Cloud Service Contract-Nature
of
Contract-Preferential
Treatment-The
petitioner challenged the award of a cloud
service
contract
by
the
Directorate
General of Hydrocarbons to the third
respondent, a registered MSE, despite the
petitioner being the lowest bidder-The
challenge was based on the assertion that
the third respondent was not the actual
provider of the core cloud infrastructure,
which was to be delivered by Amazon Web
Services
and
that
the
respondent
functioned merely as intermediary-Held,
the contract included substantial supply of
goods in addition to services, and thus
composite in nature-The MSE preference
under the Public Procurement Policy 2012
is available only where the goods and
services are produced by the MSE itselfTraders, Intermediaries and agents were
excluded from the benefits of MSE policyThe third respondent could not validly
claim MSE benefits as it did not produce
the cloud services or infrastructure but
merely facilitated AWs's services-Thus,
the award of contract to the third
respondent under the guise fo MSE
preference was arbitrary and contrary to
the MSME policy, and the petitioner was
entitled to relief.(Para 1 to 92)

The writ petition is allowed. (E-6)
(Delivered by Hon'ble Ashwani Kumar
Mishra, J.)

1. Award of contract for hiring of
cloud services for up-gradation of National
Data Repository, by the Directorate General
of
Hydrocarbons,
in
favour
of
third
respondent company, notwithstanding the
lowest bid of petitioner, is the subject matter
of challenge in this petition. The petitioner
submits that preferential treatment meted out
to the third respondent on account of its status
as registered Micro & Small Enterprise (in
short 'MSE'), although substantial part of the
contract is to be performed by Non-MSE i.e.
Amazon Web Services (in short 'AWS') is in
teeth of the applicable MSME policy and its
objectives and thus wholly irrational and
arbitrary.
3 All. Thoughtsol Infotech Pvt. Ltd. Vs. Union of India & Ors.
603
2.

Directorate
General
of
Hydrocarbons (hereinafter referred to as
'DGH') came to be established under the
administrative control of Ministry of
Petroleum and Natural Gas, Government of
India in 1993. Its object was to promote
sound management of oil and natural gas
resources having regard to environment,
safety,
technological
and
commercial
aspects of the petroleum activity. DGH was
also entrusted the management of natural
exploration and production (E&P) data in
the oil and natural gas sector.

3. The E&P data is owned by the
Government of India and is a national
asset. By way of an amendment introduced
in
Petroleum
and
Natural
Gas
(Amendment) Rules, 2006 every E&P
operator in India is obliged to provide free
of cost all data earlier obtained or to be
obtained as a result of petroleum operations
in India to the Central Government or its
designated agency. The E&P data policy
issued
by
the
Ministry
in
2017
contemplates creation of a framework for
data
assimilation,
disclosure,
sharing,
accessibility and dissemination through a
National Data Repository (in short 'NDR').
This was in accordance with the policy
decision taken by the Government of India
on 28.2.2014. NDR came to be formally
launched to public on 28.6.2017. It is
currently operational at OIDB Building at
Noida,
Gautam
Buddh
Nagar,
Uttar
Pradesh.

4. DGH has floated tenders on
GeM portal (Government e Marketplace for
short 'GeM') on 22.3.2024 for hiring of
cloud service for upgradation of national
data repository on DGH on cloud platform
(hereinafter referred to as the 'cloud
contract'). Petitioner and third respondent
both qualified technically for the award of
cloud contract and after evaluation of their
financial bids the petitioner was shortlisted
as L1 (lowest tenderer) having offered the
most competitive rates for the project.
Despite petitioner being the L1 (lowest
tenderer) the cloud contract has not been
awarded to the petitioner. The reason for it
is that third respondent is a registered MSE
and in accordance with the applicable
provisions it has been given the option to
match its financial bid with that of the
petitioner.

5. Micro, Small, and Medium
Enterprise
Development
Act,
2006
(hereinafter referred to as 'the Act of
2006') as well as policy documents issued
thereunder are relied upon by DGH for
award of the cloud contract to the third
respondent on 26.12.2024.

6. Aggrieved by the award of cloud
contract to third respondent the petitioner, a
non-MSE enterprise, has filed the present
petition. In addition, the petitioner submits
that being the lowest tenderer for the cloud
contract it ought to be awarded cloud
contract. Consequently, a further prayer is
made to command the DGH to award the
cloud contract in favour of the petitioner.

7.

The
writ
petition
was
entertained on 10.1.2025 and time was
allowed to the respondents to obtain proper
instructions. DGH filed a short counter
affidavit in the matter on 21.1.2025.
Counter affidavit of the third respondent
was also filed on 27.1.2025. The matter
was heard at some length and this Court
passed following orders on 31.1.2025:-

"When the matter is taken
up today, learned Senior Counsel
for the petitioner Sri J.S.I. Deepak
has placed before the Court a
604 INDIAN LAW REPORTS ALLAHABAD SERIES
written
submission
annexing
documents to show that substantial
part of the contract relates to the
work undertaken on behalf of
Amazon Web service and that the
providing of service by the third
respondent is only incidental and
insignificantly small in comparison
to the share attributed to M/s
Amazon Web service.
The chart annexed along
with written submission, however,
is not a part of the writ petition and
is not supported by any affidavit. In
its absence, it will be difficult for
the Court to take cognizance of
such materials.
Faced
with
such
observation, learned counsel for
the petitioner seeks adjournment as
he intends to file an additional
affidavit bringing on record such
materials.
Let such affidavit be filed
within three days.
Respondents
will
have
three days thereafter to submit a
reply.
Let this matter appear as
fresh once again on 7th February,
2025.
Mrs.Archana
Singh
appearing for the employer states
that a work order has already been
issued to third respondent. Such
fact, however, is not on record.
We permit the respondents
also to place such material on
record within three days.

Considering the issues that
arise for consideration in the facts
of the case, we provide that any
settlement of contract in favour of
the third respondent shall remain
subject to the outcome of the
present writ petition."

8. A supplementary affidavit has
been filed by the petitioner to demonstrate
that cloud contract has to be executed by
two different entities i.e. C.S.P. (Cloud
Service Provider) and Managed Service
Provider (MSP). Dominant part of the
cloud contract is to be performed by CSP.
Only incidental or support services are to
be provided by MSP i.e. the third
respondent. It is specifically asserted that
97% of financial outlay for the cloud
contract is appropriated to CSP which is
AWS in this case while MSP gets only 3%.
According to the petitioner the cloud
contract service is to be performed
primarily by CSP and therefore, the status
of MSP as MSE cannot be a relevant
consideration for award of cloud contract.
Affidavits in reply are filed by the
respondents disputing the claim whereafter
hearing in the writ got concluded.

The Contract

9. Before proceeding further it
would be apposite to briefly notice the
salient features of cloud contract. Bid for
the cloud contract were invited by DGH on
GeM portal. The bid document contained
request for proposal for the cloud contract.
Various clauses of the bid documents
specify the manner and methodology to be
followed in implementation of the cloud
contract. Clause 4.2 of the bid document
specify the purpose of the bid as
upgradation of National Data Repository
(NDR 1.0). It records that bid document is
being floated for hiring of Managed
Service
Provider
(in
short
'MSP')/empanelled Cloud Service Provider
(in short 'CSPs') of MeitY (Ministry of
Electronics & Information Technology,
3 All. Thoughtsol Infotech Pvt. Ltd. Vs. Union of India & Ors.
605
Government of India) for providing the
necessary cloud IT infrastructure for
hosting of NDR 2.0 applications on cloud
platform. The broad reasons necessitating
requirement of NDR 2.0, as mentioned in
the bid document is extracted hereinafter:-

"(a) Existing contract is
coming to end and the hardware and
other infrastructure needs to be
replaced.
(b) Setting up of Virtual data
Rooms
for
anytime/anywhere/any
device access of NDR data to achieve
larger global footprint.
(c) Raw/Pre-Stack seismic
data stored offline to be ingested
through application for effective and
contact less data delivery.
(d) Majority of No-Go area
opened for E&P activities, potentially
generating large volume of E&P data.
(e) Application stack needs
improved features and better user
experience
to
meet
industry
expectations and effectively powering
E&P Bid Rounds."

10. Essentially the cloud contract
envisages
following
functions
to
be
performed under the contract:-

"A.
Compute
Services,
Storage - Attached with VMs/VDIs,
Data Transfer/ Data Out charges,
Database
&
Analytics,
Security/Other Component
B.
Storage
-
Blob/Object/Hot/Archive for E&P
Class of Data and CDN Services
C. Support Services
D. Migration One time"

11. Services included in Clauses
'A' & 'B' broadly consists of compute
services and storage. These services are to
be provided by CSP. Remaining part of the
cloud contract included in Clauses 'C' &
'D' consists of support services and
migration of existing data to be performed
by MSP on the propriety software of CSP.

12. DGH is defined as the
purchaser in the contract, whereas 'service'
is specified in clause 34 of the bid
document to mean:-

"service" means the service
delivered to the Stakeholders of
Purchaser
or
its
nominated
agencies, employees of Purchaser
or its nominated agencies, and to
professionals, using the tangible
and
intangible
assets
created,
procured, installed, managed, and
operated by the selected bidder
including the tools of information
and communications technology."

13. The bidder was required to
submit two bids on GeM portal, i.e. Prequalification and Technical bid and (b)
financial bid.

14. Evaluation process and criteria
has been specified in clause 6 of the bid
document.
Clause
6.1.2
specify
that
financial bid of only the qualified bidders
who have cleared the pre-qualification and
technical evaluation criteria will be opened.
The bid document defines the nature of
functions to be performed by the CSP and
MSP in following terms:-

"Managed
service
as
defined in this BID DOCUMENT
are CSP Managed service defined
as- The capability provided to the
consumer by the CSP, to deploy onto
the
cloud
infrastructure
606 INDIAN LAW REPORTS ALLAHABAD SERIES
consumer
created
or
acquired
applications,
created
using
programming languages, libraries,
APIs, service and tools, supported
by
the
provider.
The
consumer/MSP does not manage or
control
the
underlying
cloud
infrastructure including network,
servers,
operating
systems
or
storage, but has control over the
deployed applications and possibly
configuration
settings
for
the
application hosting environment.
The bidder must comply
with the reference link for the
managed
service
wherever
applicable, in case the bidder does
not comply for managed service
requirement, purchaser may reject
the bidder."

15. Clause 13.4.4 of the bid
document refers to service of managed
support service/helpdesk. Sub-clause 1 to 4
of clause 13.4.4 are also relevant and are
reproduced hereinafter:-

"1.
The
Bidder
shall
maintain a pool/team of competent
resources for providing Service
Support at any time (24 hours a
day, 7 days a week) via all possible
modes including phone, chat, and
email support to purchaser for
provisioning,
configuring,
optimising, maintenance, security,
performance, troubleshooting etc.
2. The bidder shall provide
details of the Service Helpdesk
(including help line number, email
address, escalation details etc.).
This Service Helpdesk will be the
single point contact & must be
available at any given point of time
for supporting the NDR 2.0 set-up
& operations. The bidder shall
ensure that the proposed team
carry
out
all
works
in
a
professional and timely manner.
3. In case bidder is an
MSP, it shall have back-to-back
support agreement with the offered
CSP during the entire tenure of the
contract
so
that
all
support
required by the bidder from the
CSP for smooth functioning of the
entire solution during the contract
period are available to the bidder.
The bidder will be responsible for
ensuring that level of agreement
between the bidder and the CSP is
not an impediment in this regard.
4. CSP and bidder shall
ensure that the migration of NDR
1.0 to NDR 2.0 is done successfully
and
optimised
in
the
best
possible/optimal
manner
using
service. In case of any discrepancy
/ delay/challenge during successful
migration as defined in this RFP, it
will be the responsibility of the CSP
&
bidder
to
deploy
any
professional service that may be
required without any additional
cost implications to the purchaser."

16. The bidder is expected to
understand the complete architecture of
existing NDR 1.0 applications, processes,
steps for smooth migration of applications
and
databases
including
any
interdependencies between applications and
data. The bidder is to be responsible for
deployment of its application with all
security
measures/scalability/accessibility
on cloud platform in co-ordination with the
selected application service provider and in
consultation with DGH. Clause 16.3.2
specify
the
responsibility
matrix.
It
contains table 19 which specify the
3 All. Thoughtsol Infotech Pvt. Ltd. Vs. Union of India & Ors.
607
responsibility of each of the stakeholder.
The managed service provider while
submitting the bid is required to submit a
certificate by the CSP in format 'A'
according to which they (CSP) are
responsible for ensuring 99.5% availability
of service, except for archival storage for
which the availability shall be 99%. The
bid
document
also
contemplates
a
certificate by the CSP that it shall be
responsible for providing single point
support and resolution and single console
billing for all the service as listed in table
25. The CSP is also required to confirm that
the platform service offered by the bidder
(MSP) is directly managed service where
the CSP manage runtime, middleware,
operating system, virtualization, servers,
storage, networking, licenses alongwith its
upgrades, patches etc. A further declaration
was required from the CSP that all service
listed in the price schedule (bill of material)
shall be available throughout the contract
period. In the event any service become
obsolete an equivalent or higher version of
the same at the same or lower cost was to
be provided. Clause 5, 6 and 7 of format A
are
relevant
and
are
reproduced
hereinafter:-

"5. We confirm that, we
shall jointly with the Bidder, work
towards ensuring monitoring and
management of all the required
Cloud service for the projects,
including monitoring dashboard
and logging through a single
console.
6. We confirm that we shall
provide all necessary assistance
and technical support to (Name of
the Bidder) during the entire
duration
of
the
project.
Our
Technical
team
comprising
of
Technical Solution Architect and
Account Manager shall provide all
requisite support (such as review of
solution
design,
architecture
review, helping in optimizing costs,
scalability, operation excellence,
high-performance,
security
recommendations,
sustainability
etc.) to purchaser during the
tenancy of this contract.
7. We agree to provide
every
functionality
offered
by
Cloud in the form of Secured,
Authenticated and Authorized APIs
to eliminate challenges with human
error,
avoid
manual
humarı
interaction to critical databases
and
provides
flexibility
to
customers to integrate the APIs in
their environment as per business
requirements."

17. Clause 16.4.3 contains format
CP-3:
commercial
proposal
(bill
of
materials). The bidder in its commercial
proposal is required to specify the discount
offered on percentage terms on CSP
work/services in clauses 'A' & 'B' as also
the other services provided by MSP in
clauses 'C' & 'D' which are as under:-

"A.
Compute
service,
storage-attached with VMs/VDIs,
data transfer/ data out charges,
database and analytics, security/
other components;
B.
Storage,
Blob/object/hot/archive for E&P
class of data and CDN service. The
functions stipulated in clause A &
B are to be performed by the CSP;
C. specifies the support
service cost;
while D. contains the cost
towards one time migration from
hard disk to cloud charges."
608 INDIAN LAW REPORTS ALLAHABAD SERIES
18. The bid also contained a clause
providing for purchase preference to be
granted to MSEs, which reads as under:-

"1. Purchase preference to
Micro
and
Small
Enterprises
(MSES): Purchase preference will
be given to MSEs as defined in
Public Procurement Policy for
Micro
and
Small
Enterprises
(MSES)
Order,
2012
dated
23.03.2012 issued by Ministry of
Micro,
Small
and
Medium
Enterprises and its subsequent
Orders/Notifications
issued
by
concerned Ministry. If the bidder
wants
to
avail
the
Purchase
preference for service, the bidder
must be the Service provider of the
offered
Service.
Relevant
documentary
evidence
in
this
regard shall be uploaded along
with the bid in respect of the
offered service. If L-1 is not an
MSE and MSE Service Provider (s)
has/have quoted price within L-1+
15%
of
margin
of
purchase
preference /price band defined in
relevant policy, then 100% order
quantity will be awarded to such
MSE bidder subject to acceptance
of L1 bid price.
OM No.1 4 2021 PPD
dated 18.05.2023 for compliance of
Concurrent application of Public
Procurement Policy for Micro and
Small Enterprises Order, 2012 and
Public Procurement (Preference to
Make in India) Order, 2017."

19. A corrigendum to bid
was
published
on
25.7.2024
clarifying
the
applicability
of
purchase
preference
to
MSEs.
Clause 4 of the corrigendum is
relevant for the present purposes
and is reproduced hereinafter:-
"4. Purchase preference to
Micro
and
Small
Enterprises
(MSEs): Purchase preference will
be given to MSEs as defined in
Public Procurement Policy for
Micro
and
Small
Enterprises
(MSES)
Order,
2012
dated
23.03.2012 issued by Ministry of
Micro,
Small
and
Medium
Enterprises and its subsequent
Orders/Notifications
issued
by
concerned Ministry. If the bidder
wants
to
avail
the
Purchase
preference, the bidder must be the
manufacturer of the offered product
in case of bid for supply of goods.
Traders are excluded from the
purview of Public Procurement
Policy
for
Micro
and
Small
Enterprises. In respect of bid for
service, the bidder must be the
Service provider of the offered
Service.
Relevant
documentary
evidence in this regard shall be
uploaded along with the bid in
respect of the offered product or
service. If L-1 is not an MSE and
MSE Seller (s) has/have quoted
price within L-1+ 15% of margin of
purchase
preference/price
band
defined in relevant policy, such
Seller shall be given opportunity to
match L-1 price and contract will
be awarded for percentage of 100%
of total value."

20. A supplementary affidavit has
been filed on behalf of the petitioner stating
that out of total bid amount of Rs.37.92
crores for the cloud contract a sum of
Rs.35.83 crores was to be appropriated
towards the procurement of goods and
service from CSP under heads 'A' & 'B',
3 All. Thoughtsol Infotech Pvt. Ltd. Vs. Union of India & Ors.
609
while Rs.89.57 lacs and Rs. 1.19 crores,
respectively, were earmarked for the
incidental service to be provided by the
MSP. It is, therefore, asserted that 97% of
the amount payable towards contract value
was to be appropriated to CSP of
respondent no.3 i.e. 'AWS' while the third
respondent was to get only 3% of the total
contract value for the incidental service
towards installation/ setup/ commissioning/
maintenance of the products and service.
The petitioner also submits that the third
respondent is not the originator of goods
and service which are core to the
fulfillment of tender floated by DGH.

21. A chart is also annexed by the
petitioner alongwith the supplementary
affidavit filed on 4.2.2025 according to
which CSP components in the bid of
petitioner
is
97.21
%
while
MSP
component is 2.79%, whereas for the third
respondent CSP component is 97.12%
while MSP component is 2.88%.

22. We may also refer to the
petitioner's contention that though the
contract apparently is for hiring of cloud
service for upgradation of NDR, on cloud
platform, but its major part consists of
providing goods making it a works
contract. Clause 12.16 and 13.2.2 of the
RFP are relied upon which state that
licenses and software are to be purchased
on behalf of and owned by and registered
in the name of DGH.

23. It is asserted that goods
includes intangible products like licenses
and software among others. MSE order is
also relied upon to submit that intangible
products like licences are to be considered
as goods. It is, therefore, submitted that
since the award of contract includes goods
and service both, as such it is to be treated
as works contract for which preferential
treatment cannot be extended to third
respondent under appropriate regulatory
MSE scheme.

MSME scheme

24. The Act of 2006 came into
force on 2.10.2006 to provide for the
promotion, development and enhancing the
competitiveness of micro, small and
medium
enterprises
and
for
matters
connected therewith or incidental thereto.
Prior to it the small scale sector was
defined under Section 11B of the Industries
(Development and Regulation) Act, 1951.
Section 29B of the aforesaid Act of 1951
notified items reserved exclusively for
manufacture for small scale industry.
However, a detailed legal framework in
respect of micro, small and medium
enterprises was lacking which led to
enactment of Act no.27 of 2006. Certain
enterprises came to be characterized as the
micro, small and medium enterprises under
Section 7, 8 of the Act of 2006. Chapter
(iv) in the Act of 2006 regulated promotion,
development
and
enhancement
of
competitiveness of micro, small and
medium enterprises. Section 9 provided for
measures for promotion and development
of such enterprises. Section 10 dealt with
providing of credit facilities. Section 11
contemplated
procurement
preference
policy with which we are concerned in the
present case.

25. In exercise of power under
Section 11 public procurement policy of
2012 was introduced for micro, small and
medium enterprises (MSME) vide order
dated 23.3.2012. Clause 3 of the 2012 order
provided that every central ministry or
department or public sector undertaking
shall set an annual goal of procurement
610 INDIAN LAW REPORTS ALLAHABAD SERIES
from micro, and small enterprises from the
financial year 2012-13 and onwards with
the objective of achieving an overall
procurement of minimum of 20% of its
total
annual
purchases
of
products
produced and service rendered by MSEs in
a period of three years. After a period of
three years i.e. from 1.4.2015 over all
procurement goal of minimum of 20% was
made mandatory. Clause 6 of the 2012
orders contemplated grant of preference in
price quotation in tenders for MSME which
reads as under:-

"Price
quotation
in
tenders.
-
(1)
In
tender,
participating Micro and Small
Enterprises quoting price within
price band of L1+15 per cent shall
also be allowed to supply a portion
of requirement by bringing down
their price to L1 price in a situation
where L1 price is from someone
other than a Micro and Small
Enterprise and such Micro and
Small Enterprise shall be allowed
to supply up to 20 per cent of total
tendered value.
(2) In case of more than
one
such
Micro
and
Small
Enterprise, the supply shall be
shared proportionately (to tendered
quantity)."

26. The Public Procurement Policy
has been clarified by the Ministry vide
office
memorandum
dated
25.3.2022.
Several frequently asked questions have
been
elaborately
explained.
Question
nos.18, 21, 32, 47 and 48 are relied upon
which are reproduced:-

"Q.No.18: Whether this
policy is applicable for works/
trading activities also?
Ans. Policy is meant for
procurement
of
only
goods
produced and service rendered by
MSEs.
However,
traders/
distributors/ sole agent/ Works
Contract are excluded from the
purview of Public Procurement
Policy for MSEs Order, 2012.
Q.No.21:
Can
MSEs
quoting a price within the band
L1+15% be given complete supply
to tender in case tender item cannot
be split /divided?
Ans. In case of tender item
cannot be split or divided, etc. the
MSE quoting a price within the
band L1+15% may be awarded for
full/ complete supply of total
tendered value to MSE, considering
the
spirit
of
the
Policy
for
enhancing Govt. Procurement from
MSEs.
Q.No.32:
Are
Works
Contracts a part of service? What
is the difference between Works and
service?
Ans. Works Contracts are
not covered under the purview of
Public Procurement Policy for
MSEs. The definition is available in
GFR Rules 130, 143, 177 & 197.
Q.No.47:
Can
Joint
Ventures take the benefits of the
Public Procurement Policy for
MSEs Order, 2012?
Ans. No, Under Udyam
Registration (and earlier under
UAM), there is no provision of
registration of Joint Ventures. As
mentioned in S. No. 3 above,
benefits of the Public Procurement
Policy for MSEs Order, 2012 can
be availed by those MSEs which
are registered on the Udyam
Registration portal.
3 All. Thoughtsol Infotech Pvt. Ltd. Vs. Union of India & Ors.
611
Q.No.48: Can Consortiums
with Foreign Company takes the
benefits of the Public Procurement
Policy for MSEs Order, 2012?
Ans. No, Under Udyam
Registration (and earlier under
UAM), there is no provision of
registration of Consortium. As
mentioned in S. No. 3 above,
benefits of the Public Procurement
Policy for MSEs Order, 2012 can
be availed by those MSEs which
are registered on the Udyam
Registration portal."

27.

Clarification
regarding
definition of goods and service under the
public procurement policy for MSEs order
2012 has further been issued on 9.11.2016
which defines goods and service in
following terms:-

"Goods"
includes
all
articles,
material,
commodity,
livestock, furniture, fixtures, raw
material, spare parts, instruments,
machinery, equipment, industrial
plant, vehicles, aircrafts, ships,
railway rolling stock assemblies,
sub-assemblies,
accessories,
a
group of machines comprising an
integrated production process or
such other categories of goods or
intangible, products like technology
transfer, licenses, patents or other
intellectual properties (but excludes
books, publications, periodicals,
etc., for a library), procured or
otherwise acquired by a procuring
entity. Procurement of goods may
include certain small work or some
service, which are incidental or
consequential to the supply of such
goods, such as transportation,
insurance,
installation,
commissioning,
training
and
maintenance;
""Service"
means
any
subject matter of procurement other
than goods or works, except those
incidental or consequential to the
service, and includes physical,
maintenance,
professional,
intellectual, training, consultancy
and advisory service or any other
service classified or declared as
such by a procuring entity but does
not include appointment of an
individual made under any law,
rules, regulations or order issued in
this behalf, "Subject matter of
procurement" means any item of
procurement whether in the form of
goods, service or works or a
combination thereof;"

28.

Yet
another
office
memorandum came to be issued by the
Procurement
Policy
Decision
of
the
Department of Expenditure, Ministry of
Finance, Government of India on 13.1.2023
on which the second respondent placed
heavy reliance. The clarification came to be
issued on a reference from GeM portal,
regarding confusion among buyers on
definition of works and service. Clause 2(d)
of this order is reproduced hereinafter:-

"2.(d) In case of composite
contracts for Goods and service. If
the procurement value of Goods is
substantial and rendering of Service
is incidental then such procurement
should be handled as procurement
of
Goods.
Similarly,
if
the
procurement value of service is
significant and supply of goods is
incidental to the contract then such
procurement can be handled as
procurement of service."
612 INDIAN LAW REPORTS ALLAHABAD SERIES
29. It is in the context of above
statutory scheme mandated for MSEs that
the petitioner contends that the cloud
contract cannot be awarded to third
respondent, on account of its status as the
MSME.

Petitioner's submission

30. It is in the light of the facts
noticed above that the petitioner has
assailed the award of contract to third
respondent on the following grounds:-

"That Respondent No. 3 is
not entitled to seek benefits of the
MSE Order since it is excluded
from seeking benefits under the
MSE Order by virtue of the
clarification provided in the Office
Memorandum bearing No. F. No.
1(3)/2018-MA dated 25.03.2022,
which states in response to question
number 18 that the MSE Order is
meant for procurement of only
goods
produced
and
services
rendered
by
MSEs,
and
that
traders/ distributors / sole agent /
works contract are excluded from
the purview of the MSE Order;
To
seek
conferment
of
benefits under the MSE Order, an
eligible MSE bidder must prove
that all the goods being produced,
and the services being rendered are
being produced and rendered by
the MSE itself. Respondent No. 3 is
not the originator of the goods
supplied under the RFP;
The basic requirement of
the
tender
floated
by
the
Respondent No. 2 is the availability
of a cloud storage and compute
solution which is provided by a
handful of companies such as
Google, Microsoft and Amazon. It
is categorically stated that the
Respondent No. 3 (or the Petitioner
for that matter) does not have the
infrastructure to develop cloud
solutions in the manner as provided
by the companies above-named;
It is also admitted by the
Respondent No. 2 and 3 that the
cloud infrastructure is supplied by
a Cloud Service Provider (CSP).
Therefore, it is very clear from the
very nature of the tender and the
bids submitted that the originator
of the cloud storage and compute
infrastructure is the CSP and not
the Petitioner or the Respondent
No. 3. Therefore, the Respondent
No. 3 is ineligible to receive
benefits under the MSE Order as it
is not the producer of the cloud
storage infrastructure, rather it is
the CSP that is the producer of the
said infrastructure;
License and Software under
the RFP are "goods": Clauses
12.16 and 13.2.2 of the RFP state
that licenses and software are to be
purchased on behalf of and owned
by and registered in the name of the
Respondent
No. 2.
The
nonexhaustive definition of "goods" as
provided for under Rule 143 of the
General Financial Rules, 2017
("GFR")
includes
intangible
products such as software and
licenses, amongst others. It has
been clarified by the Director,
MSME (MA Division) vide Office
Memorandum
dated
09.11.2016
that
intangible
products
like
licenses are also to be considered
as goods in the context of the MSE
Order. Therefore, the license and
software (being goods) originate
3 All. Thoughtsol Infotech Pvt. Ltd. Vs. Union of India & Ors.
613
from
the
CSP and
therefore,
"goods" are not being provided by
the Respondent No. 3 to the
Respondent No. 2;
"Services", if any, being
provided by the Respondent No. 3
are incidental to the goods supplied
by the CSP;
The entire RFP may be
broken down into four heads-
Compute Services and Storage;
Support Services; and Migration
(one time). It is relevant to note
that
the
above-mentioned
categories
are
defined
and
standardised by the Respondent No.
2 in the BoM as laid out in Clause
16.4.2 and 16.4.3 of the RFP. The
BoM
lays
down
the
various
components of goods and services
required for fulfilment of the RFP
and serves as a comprehensive
document for the purpose of
understanding
the
scope
of
services;
It is submitted that all
compute
services
and
storage
under heads 'A' and 'B' are being
rendered by the CSP while the
services under heads 'C' and 'D' of
the above only pertain to support
and migration of existing data (for
which
the
CSP's
proprietary
software is used, as is evidenced
from the Supplementary Affidavit
dated 15.01.2025 filed by the
Petitioner;
It is submitted that the
services
rendered
by
the
Respondent No. 3 are encapsulated
in Clause 13.4.4 and 13.4.6 clearly
establish that these services are
purely incidental and consequential
to the supply of the actual goods in
the nature of licenses, software,
etc., and relate to installation /
commissioning
/
training
/maintenance of the products being
supplied by the CSP;
It is submitted that the CSP
for the Respondent No. 3 has stated
that the services being offered by
the Respondent No. 3 is the CSP's
directly managed service where it
manages
runtime,
middleware,
operating system, virtualization,
servers,
storage,
networking,
licenses along with its upgrades,
patches, etc. by itself, and that it
shall support the Respondent No. 3
to
work
towards
ensuring
monitoring and management of all
the required cloud services, and
that its technical team shall provide
all
necessary
assistance
and
technical support opted by the
Respondent No. 3 during the entire
duration of the project;
Lastly, it is also relevant to
note that the financial bid of the
Respondent No. 3 indicates that
approximately 97% of the sums
quoted are to be paid to the CSP,
while the bidder receives only the
balance 3% for its incidental
services. The Respondent No. 3 is a
trader/distributor of the goods and
services provided by its CSP. The
CSP is the originator/provider of
the goods and majority of the
services rendered in the RFP, and
that the support services provided
by the Respondent No. 3 is merely
incidental to the said supply of
goods, thereby incorporating all
such services within the ambit of
supply of goods itself. In such a
circumstance, the only role of the
Respondent No. 3 is to act as a
facilitator between the Respondent
614 INDIAN LAW REPORTS ALLAHABAD SERIES
No. 2 and the CSP and is hence a
mere trader/distributor;
The
contract
emanating
from the RFP is composite in
nature, and is hence a works
contract, even if it is assumed that
the Respondent No. 3 is rendering
services, it is submitted that the
contract emanating from the RFP
would be composite in nature, and
by virtue of the same, the contract
shall be construed to be a works
contract;
Even if assumed (though
not
admitted)
that
there
are
services being rendered by the
Respondent No. 3, it is submitted
that the said services and goods
would be indivisible once a license
is issued by a particular CSP, the
resultant services would also be
rendered by personnel trained to
operate
and
handle
such
software/platform. In a nutshell, the
contract is also composite in nature
since the scope of the tender could
not be executed without the CSP's
software as cross functionality
between two CSPs (Amazon and
Microsoft, in the present case) is
not technically possible;
The petitioner relies upon
the judgment of Bombay High
Court, in Sterling and Wilson
Private Limited & Ors. vs. Union of
India & Ors., AIR2017BOM24 to
state that contracts involving the
supply of goods along with services
constitute
composite
contracts,
which are to be treated as works
contracts, and that such contracts
would not fall within the ambit of
the MSE Order;
It is also urged that this
Hon'ble High Court in the case of
Rahul Singh US. Union of India
2017SCCOnLineAll3579,
upon
assessment of the language of
Section 11 of the MSMED Act,
2006, held that preference policies
could
be
issued
only
for
procurement of goods and services
produced and provided by an MSE,
and does not capture within its
ambit assignments in the nature of
a works contract;
That the above judgments
of the Hon'ble Allahabad High
Court and the Bombay High Court
were not specifically in the context
of taxation as alleged and have not
been challenged and/or overruled
by the Hon'ble Supreme Court of
India and hence remain good law,
squarely applicable in the present
context."

Reply of Respondents

31. Learned counsel for DGH,
however,
opposes
the
writ
petition
primarily on the ground that the contract in
question is not a works contract but is a
service contract. It is urged that petitioner
has acknowledged the contract to be a
service contract, as per the stipulation in
the RFP for cloud contract, and is now
estopped from asserting the contract to be a
works contract. It is submitted that placing
of reliance upon the judgment of the
Supreme Court in Kone Elevator India Pvt.
Ltd. Vs. State of Tamil Nadu and others
(2014) 7 SCC 1 is misplaced since it arose
out of a taxing statute and has no
applicability in the present case. It is also
urged that concept of works contract arises
in taxing statutes for fiscal purposes and is
primarily to regulate construction projects
and not for the present purposes. It is also
urged that the contract in question for
3 All. Thoughtsol Infotech Pvt. Ltd. Vs. Union of India & Ors.
615
providing
cloud
service
has
been
characterized
as
procurement
of
consultancy service and cannot be treated
to be a works contract. The cloud service
contract is alleged to be of a distinct nature
from
a
works
contract.
The
DGH,
moreover, submits that third respondent in
arrangement with AWS has submitted its
bid and its status as MSE cannot be
questioned as it is duly registered as a
MSME. It is also submitted that AWS is an
approved cloud service provider by the
MeiTY and various critical functions such
as cloud migration etc is to be performed
by it. Respondents contend that status of
trader cannot be attributed to respondent
no.3.

32. It is further argued that service
provided by respondent no.3 as MSP are
critical and its value addition cannot be
substituted. Reliance is placed upon the
MSE order to submit that the contract in
question is not a 'works contract' and since
third
respondent
is
registered
under
UDYAM, as such the benefit of MSME are
legitimately available to it.