The Ministry of Finance Imposes Restrictions on Procurement from Neighboring Countries

On July 23, 2020, the Ministry of Finance, Government of India amended the General Financial Rules 2017 through the promulgation of an office memorandum-imposing restrictions on bidders from countries which share a land border with India on grounds of the national security of India.

In accordance with this order, any bidder from the country sharing the land with India should register itself with the Competent Authority, being Department for Promotion of Industry and Internal Trade (DPIIT), for the purpose of becoming eligible to bid in procurement of goods, services (including consultancy and non-consultancy services) or works (including turnkey projects) in India.

For purposes of this Order, “Bidder” from a country that shares a land border with India shall mean the following:

1. An entity incorporated, established or registered in such country;
2. A subsidiary of an entity set out above;
3. An entity substantially controlled through entities incorporated, established or registered in such a country;
4. An entity whose Beneficial Owner is situated in such a country;
5. An Indian (or other) agent of such entity;
6. A natural person who is a citizen of such a country;
7. A consortium or JV where a member thereof falls under any of the above categories.

For the purposes of afore-stated paragraph “Beneficial Owner” shall mean the following:

1. In case of a Company or an LLP: Natural person who, whether acting alone or together or through one or more judicial person(s), has a controlling ownership interest or ownership of or entitlement to more than 25% of shares or profits of the company.
2. In case of a partnership firm: Natural person who, whether acting alone or together or through one or more judicial person(s), has ownership of or entitlement to more than 15% of capital or profits of such partnership.
3. In case of an unincorporated association or body of individuals: Natural person who, whether acting alone or together or through one or more judicial person(s), who has ownership of or entitlement to more than 15% of the capital or profits of such association or body of individuals.
4. Where no natural person is identified in the above scenarios: The relevant person who holds the position of senior managing official.
5. In case of a trust: Identification of author of the trust, the trustee, the beneficiaries with 15% or more interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership.

The applicability of this Order, apart from the ministries/departments and subordinate bodies, shall extend to:

1. All autonomous bodies;
2. Public sector banks and public sector financial institutions;
3. Central public sector enterprises, subject to any orders of the Department of Public Enterprises.
4. Procurement in public-private partnership projects receiving financial support from the Government or public sector enterprises/undertakings.
5. Union Territories, National Capital Territory of Delhi and all agencies/undertakings thereof.

Vide this Order, certain relaxations have been provided in certain limited cases, such as:-

1. For the procurement of medical supplies for containment of COVID-19 global pandemic till 31 December 2020;
2. Bonafide procurements made through GeM without knowing the country of the Bidder;
3. Bonafide small procurements without knowing the country of the bidder;
4. Projects receiving international funding with the approval of the applicable ministries of the Government of India;
5. Procurement by Indian missions and by offices of government agencies/undertakings located outside India.

Conclusion

The new provisions will apply only to new tenders and not where orders have been placed or contract has been concluded or letter/notice of award/acceptance (LOA) has been issued on or before this Order. In respect of tenders already invited, if the first stage of evaluation of qualifications has not been completed, Bidders who are not registered under the new Order will be treated as not qualified. If this stage has been crossed, ordinarily the tenders will be cancelled, and the process started de novo.