 Contractual Liability of Government

Introduction

There is a necessity to develop some norms to regulate and protect the individual interest and at the
same time to create working environment to exercise the discretion of the Government to extend the
contractual benefits to the other parties to the contract.

Constitutional Provision

Article 300 of the Constitution states that the Government of India may sue or be sued by the name
of the Union of India and likewise, the State government may sue or be sued by the name of the State
or of the Legislature of a State. Thus, the Constitution expressly confers the legal personality upon
the State and recognizes it as a juristic person capable of holding and acquiring property, making
contracts, carrying on trade or business, bringing and defending legal action, just as a private
individual.
In Calcutta Corporation v. Director of Rationing the Calcutta High Court also reiterated the same
and held that the legal personality of the Union of India or a State of Indian Union is thus placed
beyond doubt by the express language of Article 300.

Article 299 authorizes the Government of India and the State government to enter into contract for
any purpose subject to the mode and manner provided by Article 299. Article 299(1) provides:
1. 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 maybe.
2. 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.
3. Its execution must be by such persons and in such manner as the President or the Governor
may direct or authorize.

Thus the analysis of the provisions of Article 299 clearly provides the following three requirements
for a valid government contract under this Article:

1. The Contract must be expressly formed: It is an essential condition for a valid government
contract under Article 299 that it must be in a proper form i.e. it must be written. Where a
contract is not expressly made or is orally made, such contract is not enforceable. Thus a
mental resolve to contract is not sufficient unless there is some external manifestation of such
intent by way of a written contract. In Bhikraj Jaipuria v. Union of India the hon’ble apex
court also reiterated the same and held that where a contract is not properly formed, it is
unenforceable. However, the interpretation that the contract must be in the form as provided
by Article 299(1), sometimes, becomes inequitable to the party dealing with the government
and it also makes the operation of the government difficult therefore to mitigate such
situations, it has been held that the execution of the contract does not always mean the
contract to be in written form of a legal document. Reliance could be taken from the case
of Union of India v. A.L. Rallia Ram wherein the Court held that the mere fact that the
 officer failed to express that he is executing the contract on behalf of the President can be 1
ignored if the facts give an inference that it has been made on behalf of the President.
In Chaturbhuj Vithaldas v. Moreshwar Parasharan the Supreme Court observed that
sometimes, it would be practically impossible to adhere to the particular form for instituting a
contract by a government officer as they have to enter a variety of contracts, some in
emergency and even some of petty nature, and therefore the scope of an oral contract cannot
be put out of the doors and where circumstance demands such contracts could be formulated.

2. The expression must be in the name of the President or the Governor, as the case may
be: Another significant requisite for a valid government contract is that it must be expressed
in the name of the President or the Governor. Where a government contract is not expressed
in the name of the President or the governor, as the case may be, even though it may be made
by the authorized person, such contract would not be enforceable. In Davecos Garments
Factory v. State of Rajasthan an agreement was entered into between a contractor and the
Government. The contract was for the supply of police uniforms. But it was signed by the
Inspector General of Police in his official status without mentioning that the agreement was
executed ‘on behalf of the Governor’. The Supreme Court held that the contract was invalid
and void. It is a noticeable point that under Article 299(2) the president or the governor shall
not 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.

3. Executed by an authorized person: It is also an essential requirement for a valid

government contract that the execution of the contract must be by an authorized person. It
means that that the contract must be executed by such persons as the President or the
Governor may direct or authorize. Such direction or authorization may be by way of rules,
notifications, special orders, etc. Thus where a contract is executed by an unauthorized
person, it shall not be binding on the government. In Bhikaji Jaipuria v. Union of India, the
railway administration accepting the offer of the firm purchased the food grains from the firm
and made the payment. The purchase orders had been issued by the Divisional
Superintendent who had not been conferred any special authority but from the facts of the
case, an inference was drawn by the court for grant of special authority to him to enter into
the contract

Contractual Provisions

A contract is an agreement enforceable by law, which offers individual or personal rights, and
imposes individual or personal obligations, which the law secures and enforces against the parties to
the agreement. Section 2(h) of the Indian Contract Act, 1872 defines a contract as "An agreement
enforceable by law". The word "agreement" has been defined in Section 2(e) of the Act as "every
promise and every set of promises, forming consideration for each other.” The contracts entered into
by the Central Government or a State Government in a similar capacity as that of a private individual
are called “Government Contracts

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QUASI-CONTRACTUAL LIABILITY FOR GOVERNMENT CONTRACTS

The issue in Administrative Law mainly arises where the Departmental Authorities and public
officials, owing to their inertia or ignorance, enter into informal contracts which do not comply with
the requirements of Article 299(1). The courts have realized that a rigid observance of Article 299(1)
is not always practicable. Modern government is a vast organization. Officers have to enter into a
variety of petty contracts, many a time orally or through correspondence without strictly complying
with the provisions under Article 299. The provisions of Article 299(1) of the Constitution [section
175(3) of Government of India Act, 1935] are mandatory and if they are not complied with, the
contract is not enforceable at the instance of any of the contracting parties. In such a case, to protect
innocent persons, if what has been done is for the benefit of the government, for its use and
enjoyment, and is otherwise legitimate and proper, courts have applied Section 70 of the Indian
Contract Act, 1872 to compensate the other party on the basis of quasi-contractual liability,
notwithstanding the fact that the contract in question has not been made as per the requirements of
Article 299. A Creative Connect International Publication 342 South Asian Law Review Journal
ISSN 2456 7531 Volume 5 - 2019 “70. Obligation of person enjoying benefit of non-gratuitous act. -
Where a person lawfully does anything for another person, or delivers anything to him, not intending
to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make
compensation to the former in respect of, or to restore, the thing so done or delivered.” Conditions
laid down under section 70 are: 1. A person should lawfully do something for another person or
deliver something to him; 2. In doing so, he must not intend to act gratuitously; and 3. The other
person for whom something is done or to whom something is delivered must enjoy the benefit
thereof. All that Section 70 provides is that if the goods delivered are accepted, or the work done is
voluntarily enjoyed, then the liability to enjoy compensation for the said work or goods arises.

 The concept of “non-contractual liability

law”The instructions for this study do notmake clear what exactly is to be understood by the term (or
the categorisation) “non-contractual liability law”. In the following we assume that non-contractual
liabilitycovers the area of law which in Germany is mostly calledDeliktsrecht(or the law
ofunerlaubten Handlungen), in France bears the titleresponsabilite ́ civile de ́ lictuelleand in
theCommon Law passes under the rubric of ‘the law of torts’ or ‘tort law’. We further assumethat the
term “non-contractual liability” also embraces the field of “fault-based” liability(as it is still called in
many continental legal systems) as well as “strict” liability. Ourunderstanding is that this study is not
to be pursued in such a way that it covers theremaining extra-contractual obligations (in particular
the law of unjustified enrichment[in the broad sense, that is to say includingcondictio indebiti]and
the law of benevolentintervention in another’s affairs[negotiorum gestio]), although it may also be
patentlyapparent that there are at least as many issues arising from their interaction with
mattersregulated by contract law as there are in the relation of the latter to tort and propertylaw.1In
accordance with the instructions for this study, the interrelationships bothbetween those areas and
between those areas and contract, property and tort law, areoutside our remit. Moreover, equally
beyond the scope of this study is a completion of the“triangle” of interrelationships, in the sense of
illuminating the often extraordinarilyentangled connections between tort and property law. (These
appear, for example in thefunctional equivalence ofrei vindicatioand the tort of conversion, and also
in a number offurther intersections – amongst others in the field of the so-called
owner/possessorrelationship and the acquisition of property in good faith from an unentitled party.) 2

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A Creative Connect International Publication 336 South Asian Law Review Journal ISSN 2456 7531 Volume