13 Government Contracts

GOVERNMENT
CONTRACTS
LIABILITY OF THE STATE IN
CONTRACTS
Art.299 narrates:
All contracts made in the exercise of the
executive power of the Union or of a State shall
be expressed to be made by the President, or by
the Governor of the State, as the case may be.
All such contracts and all assurances of property
made in the exercise of that power shall be
executed on behalf of the President or the
Governor by such persons and in such manner as
he may direct or authorise.
No liability of the President or Governor:
Neither the President nor the Governor shall be
personally liable in respect of any contract or
assurance made or executed for the purposes of this
Constitution, or for the purposes of any enactment
relating to the Government of India heretofore in
force, nor shall any person making or executing any
such contract or assurance on behalf of any of them
be personally liable in respect thereof.
Execution: All the contracts shall be executed by
the competent person and in the prescribed
manner.
If the requirement of the Article 299 are not
complied with, the officer executing the contract
would be personally liable.
Quantum merit or quantum valebat (service or
goods received): If the Government enjoys the
benefit of performance by the other party to the
contract, shall be bound to give recompense on
the principle of Quantum merit or quantum
valebat (service or goods received). The Principles
as laid down in Sections 65 to 70 (Quasi-contracts)
of the Indian Contract Act, 1872 shall also apply in
the Government contacts also.
In any case, the President or the Governor is not
personally liable on the contract.
Depending upon the facts and circumstances the
Doctrine of Estoppel may also apply in the
Government contracts under Article 299.
State of West Bengal vs. B.K. Mondal
& Sons (AIR 1962 SC 779)
On the request of the Sub-Divisional Officer,
Arambagh, B.K. Mondal & Sons, the
contractors, constructed certain godowns for
the use of civil supplies. The Civil Supplies had
been utilizing the said constructions. B.K.
Mondal & Sons submitted a Bill for Rs.19,325.
The State Government rejected their claim
contending that there was no contract
between the Government and B.K. Mondal &
Sons.
The Supreme Court gave judgement in favour
of B.K. Mondal & Sons and ordered the
Appellant-State Government to pay the Bill of
construction, compensation and suit costs.
DOCTRINE OF PROMISSORY ESTOPPEL
The Doctrine of Estoppel is well settled in
administrative law and Constitutional Law.
It is called as Promissory Estoppel or
Equitable Estoppel.
ESTOPPEL
What is Estoppel?
Estoppel is a rule of evidence defined under

sections 113 to 115 of Indian Evidence Act,
1872.
In Equity, a person, who has misrepresented
facts, relying upon which the other has acted,
cannot deny those facts later.
Or
A man should keep his words, all the more so
when the promise is not a bare promise but is
made with the intention that the other party
should act upon it.
This Doctrine of Equity is broader than the
Doctrine embodied in Section 115 of the
Indian Evidence Act, 1872.
Three Ingredients:
There must be a promise or representation by a
person who has real authority to give such
promise/assurance.
The person to whom such a promise/assurance is
made should act relying upon such
promise/assurance.
It should cause severe loss to the other person to
whom such a promise/assurance was made.
UNION OF INDIA V. ANGLO AFGHAN
AGENCIES, AIR 1968 SC 718
The Textile Commissioner published a scheme of
export promotion and represented to the
exporters of woollen goods that they would be
entitled to import raw material of the total
amount equal to 100% of the free on board
(FOB) value of exports.
In the instant case, the respondent exported
goods worth Rs. 5 lakhs, but the Commissioners
issued an import licence for Rs.1.99 lakhs only.
(Commissioner estopped from the earlier
promise).
On the order being challenged, the
Government took the plea that the scheme is
merely administrative in character and,
therefore, not binding on the Government.
The Supreme Court rejected the contention
and held that even if the scheme has no
statutory force, the Government is not
entitled to break the promises at its whim.
MOTILAL PADAMPAT SUGAR MILLS CO.
LTD. Vs. STATE OF U.P, (1979) 2 SCC 409
It marks a significant development in law relating
to the Doctrine of Promissory Estoppel, stands for
the propositions:
The Doctrine could be used as a shield or as a sword;
The Doctrine is not based on any contract and,
therefore, even when a Government contract is void
for non-compliance with Article 299, the Government
could still be bound by Estoppel;
The Doctrine cannot be defeated on the plea of
executive necessity of freedom of future executive
action.
CONCLUSION
Doctrine of Promissory Estoppel applies for
the government contract also.
This principle is excluded if the government
acts under any statute. For eg., Income Tax
Act.
Thus, application of the doctrine of
promissory estoppel is a welcome step in
India.

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Estoppel is a rule of evidence defined under

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