Liability of State in Contracts

Liability Of State In Contracts

The topic “Liability Of State In Contracts” is dealt with in Article 299. This article authorises that the Government of India and the Government of State enter into a contract for any purpose subject to the manner and mode provided in the Article 299.
All the points written below clearly explain about Article 299(1) :-

  • It is clearly mentioned that all the contracts made in the exercise of the executive power of the Union or the State shall be expressed to be made by the President or by the Governor of the State.
  •  The exercise of that power regarding all such contracts and all assurances of property shall be executed on behalf of the President and the Governor.
  • The persons executing shall be in such manner as the President or the Governor may direct or authorise.

The provisions of Article 299(1) mandatory:-

The provisions provided in the Article 299(1) are mandatory. The general public and the government  from unauthorised contracts are protected under these provisions. The contract  which is not in the form as provided in the Article 299(1) can enforce it or be held liable for the breach neither by the government nor the person entering into the contract with the government. No implied contract must be between the person and the government. If an implied contract takes place, Article 299 would become a death letter. The contract between the government and the person without being executed in the form as provided by the Article 299(1) can take the plea of implied contract. There will be no contract at all, if it is not in compliance with Article 299(1).

Form of Contract:-

The court held in Bhikraj Jaipuria v. Union of India A.I.R.1962 SC 113, that if the contract is not in a proper form then it will not be enforceable.  The purchase orders were not  expressed  to be made in the name of the Governor General nor must be executed on his behalf. But, the purchase orders were signed by the Divisional Superintendent. Here, the resultant contract to claim compensation was not entitled to the appellant. In Union of India v. A.L. Rallia Ram A.I.R. 1963 SC 1685, in this case, the court held that the officer failed to express that the execution on behalf of the President could be ignored,  if the facts state that the execution was made on behalf of the President.

 In Karamshi v. State of Bombay A.I.R. 1964 SC 1714, a contract was made between the appellant and the Minister,P.W.D, to supply the canal water. Under the instructions of the government, the Canal Officer repudiated the contract. The plea for specific performance and damages for breach of contract by the appellant was not allowed for non – compliance of the provisions of Section 175(3) of the Government of India Act, 1935 corresponding with Article 299 of the Constitution. In State of Punjab v. Om Prakash Baldev Krishnan A.I.R. 1988 SC 2149, The Court held that the Executive Engineer,P.W.D, did not sign the acceptance letter in the name of the Governor. The acceptance letter was regarding the tender of the respondent for the construction of a bridge. It was not considered as a valid contract and for the withdrawal of the contract, the respondent could not be held liable. These particular provisions of Article 299 considered  matters of public policy but not mere matters of form. The provisions of Article 299 protect the government from entering into unauthorised contracts.

Natural Justice:-

While dealing with the private law, the actions of the Government must confirm the prescribed procedure and must also be reasonable, biased or malafide. In Erusion Equipment v. Chemicals Ltd v. State of West  Bengal A.I.R. 1975 SC 266, It was held by the Supreme Court that, without giving the opportunity of hearing,the contractor cannot be blacklisted because it will deprive him from the equal opportunity in matters of public contract. The Government did not observe the principles of natural justice. So, the Court quashed blacklisting of the contractor. The act of the State must stand to reason and must be transparent. The State cancelled the tender of the petitioner after the execution of the agreement by the Chief Engineer without assigning any reason, the order of cancellation was quashed.  At the time of submission of tender, the appellant was not blacklisted or banned. Neither was put on the holiday list. When the guidelines for blacklisting itself showed that ban would have prospective effect, the appellant could not be retrospectively blacklisted.

The Contractual Liability of State the same as that of an individual also :- 

Under Indian Constitutional Law, the contractual liability of the State is same as the ordinary law of contracts of an individual. In the present Constitution, the legal position in this respect has not changed. The liability of States is the same as that of East India company before 1858.

No personal liability:-

The President or the Governor  under Article 299 (2),shall not be liable personally in respect to any contract or assurance executed or been made for the purposes of this Constitution or may be for the purpose of any enactment relating to the Government of India. A person will not be personally liable for making or executing any contract or assurance on behalf of the President or the Governor.

When the contract is not in the proper form then there is no personal liability of the officer:-

In the case of Chaturbhuj v. Moreshwar A.I.R. 1954 SC 236, The court held that when the contract entered with the government is not in a proper form according to the provisions of Article 299 (1), the Officer who entered into the contract could be held personally liable under Section 230 (3) of the Indian Contract Act. Later, In State of U.P. v. Murari Lal, the court dropped the view and held that Section 230 (3) of the Indian Contract Act would not be applied to such cases.

Author: Shaheera Sultana,
NBM Law College, 2nd year

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