Regulatory Insights
from India Tax & Regulatory Services
www.pwc.in
Amendment in General Finance Rules, 2017 imposing restrictions including prior registration
requirement for bidders from
countries sharing land border to participate in public procurements
July 28, 2020
In brief
The Department of Expenditure (DoE) has inserted1 Rule 144 (xi) under the General Finance Rules, 2017 (GFR), empowering the DoE to impose restrictions, including registration and/ or screening requirements on procurement from bidders from a country or countries, or a class of countries, on the grounds of defence of India, or national security.
As per the powers exercised under 144 (xi) of the GFR, the DoE has ordered that any bidder from a country that shares a land border with India must register with the Competent Authority for bidding under a Public Procurement Order. This restriction does not apply to orders placed or contracts concluded or letter/ notice of award/ acceptance (LoA) issued before the date of issue of Order. For tenders that are yet to be opened, or with incomplete evaluation of technical bid or the first exclusionary qualificatory stage, no contracts shall be placed on bidders from such countries. If the bid has crossed the first exclusionary stage, the contract shall be considered de novo.
The restrictions under Rule 144 (xi) of the GFR are summarised below.
In detail
Registration requirement for bidders of countries sharing land borders with India
Rule (xi) to Rule 144 of the GFR has been inserted, which empowers the DoE to impose restrictions or screening requirements on bidders from country on ground of defence and national security.
In the exercise of powers laid
1 Office Memorandum No. F. No. 6/18/2019-PPD dated 23 July 2020
under Rule 144 (xi) of the GFR, the DoE has placed a
requirement that a bidder from a country that shares land borders requires prior registration with the
Competent Authority outlined in point 4. This requirement would be placed as a pre- requisite in the tender
condition and a certificate shall be taken from bidders in the tender documents regarding their compliance with this Order. The requirement shall
also be applicable to sub- contractors appointed by the bidder under works contracts.
Applicability on following procurement agencies This Order would be applicable to the following:
• Central Government Ministries and Departments;
• All autonomous bodies;
• Public sector banks and
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• public sector financial institutions;
• Central Public Sector
Enterprises; subject to orders of the Department of Public Enterprises;
• Public Private Partnership projects receiving financial support from the Government or public sector enterprises/
undertakings;
• Union Territories, National Capital Territory of Delhi and all agencies/ undertakings thereof;
• Government E-Marketplace (GeM) registering vendors/
bidders.
The Government of India, while invoking the provisions of Article 257(1) of the Constitution of India, has directed the chief
secretaries of the State
Governments to implement the Order in procurement by the State Governments, State undertakings, etc.
Who does this apply – Bidder from country sharing land border
“Bidder” shall mean the following:
a. An entity incorporated, established or registered in such a country; or
b. A subsidiary of an entity incorporated, established or registered in such a country;
or
c. An entity substantially controlled through entities incorporated, established or registered in such a country;
or
d. An entity whose beneficial owner is situated in such a country; or
e. An Indian (or other) agent of such an entity; or
f. A natural person who is a citizen of such a country; or g. A consortium or joint venture
where any member of the consortium or joint venture or agency, branch or office controlled by any of the above.
The term “beneficial owner”
means –
A. In reference of following entities, a natural person(s), who, whether acting alone or together, or through one or more juridical person(s), has – (Please refer the below table.)
Entity Beneficial owner
1. Company or Limited Liability
Partnership 1. Controlling ownership interest, i.e., more than 25% of shares or capital or profits of the company; or
2. Exercises control through other means, i.e., including right to appoint the majority of the directors or to control the management or policy decisions, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements.
2. Partnership Firm Ownership of entitlement to more than 15% of capital or profits of the partnership.
3. Unincorporated association or
body of individuals Ownership of or entitlement to more than 15% of the property or capital or profits of such association or body of individuals.
4. Trust Author of the trust, trustee and beneficiaries with 15% or more interest and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership.
B. Where no natural person is identified, the beneficial owner is the relevant natural person who holds the position of a senior managing official.
Competent authority for registration
The Department for Promotion of Industry and Internal Trade (DPIIT) shall constitute a registration committee
comprising of officers not below
the rank of joint secretary from following Ministries/
Departments:
A. DPIIT, who shall be the Chairman;
B. Ministry of Home Affairs;
C. Ministry of External Affairs;
D. Departments whose sectors are covered by applications under consideration.
The DPIIT shall lay down the method of application, format, etc., for registration process. The Competent Authority shall first seek political and security clearances from the Ministry of External Affairs and Ministry of Home Affairs, as per guidelines issued from time to time.
The States have also been assigned similar functions to the DPIIT to constitute registration
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committees; however, the security and political clearance process will remain the same. However, State registration shall be valid for procurement of such States only.
The decision of the Committee shall be for all types of tenders or for a specified type of goods or services and it may be for a specified or unspecified duration of time, as deemed fit. The registration granted by the Competent Authority of the Government of India shall be valid not only for procurement by the Central Government and its agencies/ public enterprises, etc., but also for procurement by State Governments and their agencies/
public enterprises.
The Competent Authority is empowered to cancel the registration already granted if it determines that there is sufficient cause. The Competent Authority shall not be required to give reasons for rejection/ cancellation of registration of a bidder.
Existing tenders
1. Orders that are placed or
contracts concluded or letter/
notice of award/ acceptance (LoA) issued would continue;
2. Tenders that are yet to be opened, or with incomplete evaluation of technical bid or the first exclusionary
qualificatory stage will need to be re-issued;
3. The tendering process that has crossed the first exclusionary qualificatory stage shall be considered de novo and will be re-issued.
Exceptions to the Order The Order shall not apply to the following:
1. Procurement by Indian missions and by offices of Government agencies/
undertakings located outside India;
2. Projects receiving
international funding, except with the approval of the Department of Economic Affairs;
3. Bona fide small
procurements, made without
knowing the country of the bidder;
4. Bona fide procurements made through the GeM without knowing the country of the bidder till the date fixed by GeM;
5. Medical supplies directly related to the containment of the COVID-19 pandemic until 31 December 2020.
The takeaways
Going forward, all Government procurement contracts would require bidders from countries with which India shares land border a prior registration to become eligible to supply goods and services under public procurement orders.
Detailed application process and procedure would be issued by DPIIT in due course of time.
Let’s talk
For a deeper discussion of how this issue might affect your business, please contact your local PwC advisor
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