Delhi High Court Clarifies Distinction Between EOU License and DPIIT Industrial License in Defense Procurement

Overview of the Judgment

The Delhi High Court in MKU Limited And Anr Vs Union of India And Others has delivered a significant ruling clarifying that an Export Oriented Unit (EOU) license granted by the Department of Commerce (DoC) cannot be treated as equivalent to an industrial license issued by the Department for Promotion of Industry and Internal Trade (DPIIT). This distinction proved critical in determining bidder eligibility for defense procurement tenders.

Background and Factual Matrix

Tender Notification Details

The Ministry of Defense issued a Request for Proposal (RFP) dated 04.02.2025 seeking procurement of various defense equipment including:

  • 11,700 Ballistic Helmets (NIJ III+)
  • 27,700 Bullet Proof Jackets (BPJ) (NIJ III and above)
  • 3,213 Night Sight (Thermal Imaging) devices for Assault Rifle (AK-203)

Petitioner's Status and Claims

The petitioner company operated as a 100% Export Oriented Unit and held an industrial license issued by the DoC dated 27.12.2024. The licensing jurisdiction for EOUs vested with the DoC, which is part of the Ministry of Commerce and Industry.

Historical Context of Licensing Authority

Prior to 2013, the responsibility for granting industrial licenses to both EOU units and Domestic Tariff Area (DTA) supply units rested with the DPIIT (formerly known as DIPP - Department of Industrial Policy and Promotion). However, following deliberations in a Committee Meeting held on 13.03.2013 under the Industries (Development and Regulations) Act, 1951 and the Registration and Licensing of Industrial Undertakings Rules, 1952, the authority to issue industrial licenses specifically to EOUs was transferred to the DoC.

Eligibility Criteria Dispute

The RFP explicitly mandated possession of a valid industrial license issued by the DIPP (subsequently renamed DPIIT) as a specific eligibility criterion. The petitioner submitted that it possessed a valid industrial license granted by the DoC and therefore satisfied the eligibility requirements.

Sequence of Events Leading to Litigation

Pre-Bid Communications

On 11.02.2025, the petitioner forwarded pre-bid queries to the procurement authority. Multiple rounds of correspondence ensued between the parties regarding bid submission protocols and clarifications.

On 22.03.2025, the petitioner communicated concerns to the procurement authority, noting that conflicting interpretations were circulating regarding DPIIT, EOUs, DoC, and the applicable legal framework. The petitioner requested an opportunity to submit clarifications before any adverse decision.

Disqualification Communications

Despite the petitioner's representations, the procurement authority issued a communication dated 26.03.2025 declaring the petitioner "non-compliant in the technical bid" for failure to comply with specific provisions of Appendix "D" to the RFP.

Subsequently, on 28.03.2025, another letter was issued making material corrections, wherein the petitioner was formally disqualified under different provisions - Para 1(d)(i) of Appendix H to the RFP.

Timing Anomaly

Notably, the Deputy Chief of Army Staff (DCoAS) issued a letter at 5:32 p.m. on 26.03.2025 indicating that the petitioner's representation concerning the industrial license would receive consideration per existing policy and Defence Acquisition Procedure, 2020 (DAP 2020) provisions. Remarkably, within merely 14 minutes, at 5:46 p.m. on the same date, the petitioner received the disqualification communication.

Clarification Request Timeline

The Ministry of Defence had sought clarifications from the MoC through a letter dated 19.02.2025 regarding:

  • Whether industrial licenses issued by DPIIT and DoC possess identical validity
  • Whether industrial licenses issued to EOUs qualify for defense procurement purposes
  • Whether any separate regulatory requirements exist

The Technical Evaluation Committee declared the petitioner's technical bid "non-compliant" on 18.03.2025, communicated on 26.03.2025, without awaiting responses to the clarification queries, which were ultimately forwarded to the procurement authority only on 28.03.2025.

Singular License Argument

The petitioner's primary submission emphasized that the Industries (Development and Regulations) Act, 1951 contemplates only a single category of industrial license. The legislation does not prescribe or recognize two distinct types of licenses for industrial undertakings. Consequently, the respondents could not extraneously introduce distinctions between licenses issued by DoC versus DPIIT.

Equivalence of Licensing Authority

The petitioner argued that both DoC and DPIIT function under the common nodal ministry - the Ministry of Commerce and Industry (MoC). Therefore, licenses issued by either department should be treated as equivalent for all practical purposes, particularly when both pertain to manufacturing defense equipment.

Delegation Principle

Relying on the principle established in Roop Chand vs. State of Punjab, (1962) SCC OnLine SC 17, the petitioner contended that when DoC issues a license, it acts as a delegatee of DPIIT. Therefore, the license issued by the delegatee authority effectively constitutes a license issued by the delegating authority itself.

The petitioner further emphasized that the MoC's affidavit confirmed identical rigor in both processes, with final vetting by identical ministries, including the Ministry of Home Affairs (MHA). Crucially, although the Board of Approval (BoA) initially considered the petitioner's application, final approval was granted by DPIIT, suggesting the license should be deemed issued by DPIIT.

DAP 2020 Compliance

The petitioner stressed that DAP 2020 constitutes the governing framework for defense procurement and its provisions carry mandatory force. The petitioner highlighted that the respondents themselves admitted in their counter affidavit dated 14.05.2025 their obligation to operate within DAP 2020's boundaries.

The petitioner pointed out that the respondents later characterized the insertion of words "issued by DIPP/DPIIT" in their counter affidavit as a 'mistake', acknowledging no such requirement exists under DAP 2020. This admission, according to the petitioner, necessitated interpreting the RFP conditions consistently with DAP 2020, which recognizes only a generic "industrial license" requirement.

Afterthought Theory

The petitioner argued that the respondents' insistence on an industrial license specifically issued by DPIIT represented an afterthought, neither supported by the MoC, DAP 2020, nor the original RFP provisions.

The fact that the Ministry of Defence found it necessary to seek clarification from MoC regarding whether licenses issued by DPIIT and DoC possess equivalent validity demonstrated that the respondents themselves initially did not perceive the licenses as distinct. Had the RFP genuinely mandated a DPIIT-issued license exclusively, such clarification would have been unnecessary.

Commercial Prudence Principle

Citing Shivashakti Sugar Ltd. vs. Shree Renuka Sugar Ltd., (2017) 7 SCC 729, the petitioner submitted that tender conditions must receive interpretation aligned with commercial prudence principles and ease of doing business.