contractual libility of government

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CONTRACTUAL LIBILITY OF GOVERNMENT 2013

CHANAKYA NATIONAL LAW UNIVERSITY, PATNA 1

INTRODUCTION

In modern state, whatever be the form of government, the individual is affected in his everyday

life and in the exercise of his civil rights by acts of the State and its officials in various spheres

and in different ways. Some of these acts are done by the State as the sovereign while others aredone by the State in trading and other capacities in the same manner as a private individual does.

Hence, the subject of government contracts has assumed great importance in the modern times. In

the modern era of a welfare state, government s economic activities are expanding and the

government is increasingly assuming the role of the dispenser of a large number of benefits.

Today a large number of individuals and business organisations enjoy largess in the form of

government contracts, licenses, quotas, mineral rights, jobs, etc. This raises the possibility of

exercise of power by a government to dispense largess in an arbitrary manner. Therefore, there is

a necessity to develop some norms to regulate and protect individual interest in such wealth and

thus structure and discipline the government discretion to confer such benefits.

A contract is an agreement enforceable by law, which offers personal rights, and imposes personal

obligations, which the law protects and enforces against the parties to the agreement. The general

law of contract is based on the conception, which the parties have, by an agreement, created legal

rights and obligations, which are purely personal in their nature and are only enforceable by

action against the party in default. Section 2(h) of the Indian Contract Act,1872 defines a

contract as An agreement enforceable by law . The word agreement has been defined inSection 2(e) of the Act as every promise and every set of promises, forming consideration for

each other . A contract to which The Central Government or a State Government is a party is

called a Government Contract .

Government contracts have been accorded Constitutional recognition. The Constitution, under

Article 298 , clearly lays down that the executive power of the Union and of each state extends to

the carrying on of any trade or business and to the acquisition, holding and disposal of property

and the making of contracts for any purpose . The Constitution therefore, provides that a

government may sue or be sued by its own name. A similar provision is found in the Code of

Civil Procedure 1908 under Section 79.


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The subject of government contracts has assumed great importance in the modern times. Today

the state is a source of wealth. In the modern era of a welfare state, government s economic

activities are expanding and the government is increasingly assuming the role of the dispenser of

a large number of benefits. Today a large number of individuals and business organizations

enjoy largess in the form of government contracts, licenses, quotas, mineral rights, jobs, etc. This

raises the possibility of exercise of power by a government to dispense largess in an arbitrary

manner. It is axiomatic that the government or any of its agencies ought not to be allowed to act

arbitrarily and confer benefits on whomsoever they want. Therefore there is a necessity to

develop some norms to regulate and protect individual interest in such wealth and thus structure

and discipline the government discretion to confer such benefits.

Contract-Meaning of the term

A contract is an agreement enforceable by law which offers personal rights, and imposes

personal obligations, which the law protects and enforces against the parties to the agreement.

The general law of contract is based on the conception, which the parties have, by an agreement,

created legal rights and obligations, which are purely personal in their nature and are only

enforceable by action against the party in default.

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

Government Contract is to which The Central Government or a State Government is a party is

called a Government Contract .


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In the medieval Indian history the personal liability of officers for their wrongs was more vogues

with evidences showing equality between the ruler and the ruled subject. Only when the king

considered it proper to undertake the burden of public officer, it was then the state treasury used

to pay the compensation. Dharma was considered the administrative law binding the king as well

as the subjects. Both in Hindu law and Muslim law, the rulers themselves administered justice as

far as possible and the rest was done by the exceptionally learned and honest judges. The most

significant recent trend has been an assertion on the part of the court that it has a power to grant

compensation. The principle of personal liability of public servants for wrongs done to citizens is

already a part of Indian law based on English case laws.

Pre-Constitution situation in India related to the contractual liability of government through

judicial decisions in which a consideration of the pre -constitution cases of the Governments

liability begins with the judgment of the Supreme Court of Calcutta in the case. P. & O. Steam

Navigation Co. v. Secretary of State .The principle of this case holds that if any act was done in

the exercise of sovereign functions, the East India Company or the State would not be liable. It

drew quite a clear distinction between the sovereign and non-sovereign functions of the state. As

the facts of the case go, a servant of the plaintiff-company was proceeding on a highway in

Calcutta, driving a carriage which was drawn by a pair of horses belonging to the plaintiff. He

met with an accident, caused by negligence of the servants of the Government. For the loss

caused by the accident, the plaintiff claimed damages against the Secretary of State for India.

The Supreme Court observed that the doctrine that the King can done wrong , was applicable to

the East India Company 2. The company would have been liable in such cases and the Secretary

of State was thereafter also liable. This arose out of the section 65, Government of India Act,

1858, which equated the liability of the Secretary of State for India with that of the East India

Company. Distinguishing between sovereign and non-sovereign functions it was held that if it

were committed by a public servant in the discharge of sovereign functions, no action would lie

against the Government e.g. if the tort was committed while carrying on hostilities or seizing

enemy property as prize.

2M.P.Jain; Indian Constitutional Law; 5th Ed; p1846
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This doctrine of immunity, for acts done in the exercise of sovereign functions, was applied by

the Calcutta High Court in Nobin Chander Dey v. Secretary of State 3. The plaintiff in this case

contended that the Government had made a contract with him for the issue of a licence for the

sale of ganja and had committed breach of the contract. The High Court held that upon the

evidence, no breach of contract had been proved. Secondly even if there was a contract, the act

had been done in exercise of sovereign power and was thus not actionable.

Secretary of State v. Hari Bhanji 4 : In this case, the Madras High Court held that State immunity

was confined to acts of State. In the P & O Case, the ruling did not go beyond acts of State, while

giving illustrations of situations where the immunity was available.

It was defined that Acts of State, are acts done in the exercise of sovereign power, where the act

complained of is professedly done under the sanction of municipal law, and in exercise of

powers conferred by law. The mere fact that it is done by the sovereign powers and is not an act

which could possibly be done by a private individual does not oust the jurisdiction of the civil

court.

The Madras judgment in Hari Bhanji holds that the Government may not be liable for acts

connected with public safety, even though they are not acts of State. This view was re-iterated in

Ross v. Secretary of State 5. The Allahabad High Court took a similar view in Kishanchand v.

Secretary of State 6.

However, in Secretary of Secretary of State v. Cockraft 7, making or repairing a military road was

held to be a sovereign function and the Government was held not liable, for the negligence of its

servants in the stacking of gravel on a road resulting in a carriage accident that injured the

plaintiff.

Other such cases as in the Bombay case of Rao v. Advani 8, it was held that the Madras view in

the Hari Bhanji case was correct. The Bombay case was not one of a claim to damages, butrelated to a petition for certiorari to quash a Government order for the requisitioning of property,

3I.L.R. 1 Cal. 114ILR (1882) 5 Madras 2735[1913] 37 Mad. 556ILR (1974) II Delhi 6377AIR 1915 Mad. 9938AIR 1949 Cal. 385


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as proper notice had not been given. On appeal, the Supreme Court, in the case of State of

Bombay v. Khushaldas Advani 9, reversed the High Court, holding that natural justice was not

required to be observed, before requisitioning any property.

9AIR 1950 SC 222


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INDIA IN PRESENT SENARIO

The words had not this Constitution been enacted in Article 300(1) indicate that the basis of

sueability of the state in India is historical. In order to appreciate the significance of these words,

we must trace the history of the Indian Administration from the time of the East India Company,

when the Court was of the view that even though the East India Company has sovereign powers,

if it contracts in civil capacity and if it breaks its contract it would be held answerable. Later the

Government of India Acts (Section 30 of Act of 1915 and Section175 of Act of 1935) expressly

empowered the Government to enter into contracts with private individuals and the

corresponding provision in the Constitution is Article 299(1). In all these Acts it was provided

that the person making the contract on behalf of the Government would not be personally liable in

respect thereof.The Indian Contract Act, 1872 does not prescribe any form for entering into contracts. A contract

may be oral or in writing. It may be expressed or be implied from the circumstances of the case

and the conduct of the parties. But the position is different in respect of Government Contracts.

A contract entered into by or with the Central or State Government has to fulfill certain

formalities as prescribed by Article 299 of the Indian Constitution.

Contracts and Government contracts

It is true that in respect of Government Contracts the provisions of Article 299(1) must be

complied with, but that does not mean that the provisions of the Indian Contract Act have been

superseded.

In the case of State of Bihar v Majeed 10,

The Hon ble Supreme court held that;

It may be noted that like other contracts, a Government Contract is also governed by the Indian

Contract Act, yet it is distinct a thing apart. In addition to the requirements of the Indian Contract

Act such as offer, acceptance and consideration, a Government Contract has to comply with the

provisions of Article 299. Thus subject to the formalities prescribed by Article 299 the

10AIR 1954 SC 786


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contractual liability of the Central or State Government is same as that of any individual under

the ordinary law of contract ..

As regards the interpretation of contract, there is no distinction between the contracts to which

one of the parties is the Government and between the two private parties 11 .

Though there is hardly any distinction between a contract between private parties and

Government contract so far as enforceability and interpretation are concerned yet some special

privileges are accorded to the Government in the shape of special treatment under statutes of

limitation 12.

Some privileges are also accorded to Government in respect of its ability to impose liabilities

with preliminary recourse to the courts. This probably is because of doctrines of executive

necessity and public interest.

Formation of Government Contracts

The executive power of the Union of India and the States to carry on any trade or business,

acquire, hold and dispose property and make contracts is affirmed by Article 298 of the

Constitution of India. If the formal requirements required by article 299 are complied with, the

contract can be enforced against the Union or the States 13.

11Ram Lal v State of Punjab , AIR 1966 Punj 43612 Navrattanmal v State of Rajasthan , AIR 1961 SC 170413Pollock &Mulla; Indian Contract & Specific Relief Acts; 12th Ed; p312


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RELEVENT PROVISION AND UNDERLYING PRINCIPLE

Article 299 provides:

(1) All contracts made in the exercise of executive power of the union or a state shall beexpressed to be made by the President or by the Governor of the State as the case may be, and 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 person and in such manner as he

may direct or authorize.

(2) Neither the President nor the Governor shall be personally liable in respect of any contract or

assurance made or executed for the purpose of any enactment relating to Government of India

hereto before in force , nor shall any such contract or assurance on behalf of any of them be personally liable in respect thereof .

Thus Article 299 lays down three conditions which the contracts made in the exercise of the

executive power of the Center or a State must fulfill to be valid

The contract must be expressed to be made by the president or the Governor as the case may be;

These contracts made in the exercise of the executive power are to be executed on behalf of the

President/Governor as the case may be;

The execution must be by such person and in such manner as the President or the Governor of

the case as the case may be, may direct or authorize.

The expression executed does not by itself contemplate execution of a formal contract by the

executing parties. A tender for the purchase of goods in pursuance of a tender notice, notification

or statement inviting tenders issued by or on behalf of the President or the Governor, as the case

may be, and acceptance in writing which is expressed to be made in the name of the President or

Governor and is executed on his behalf by a person authorized in that behalf would fulfill the

requirements of Article 299(1). If these requirements are fulfilled, a valid contract may result

from the correspondence. 14

14State of Madhya Pradesh v Firm Gopi Chand Sarju Prasad , AIR 1972 MP 43


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It has been held by the Hon ble Supreme Court in the case of Bhikaraj Jaipuria v Union of

India 15

it is clear from the words expressed to be made and executed that there must be a formal

written contract. The provisions of Article 299(1) are mandatory in character and any

contravention thereof nullifies the contract and makes it void. The provisions of Article 299(1)

have not been enacted for the sake of mere form but they have been enacted for safeguarding the

Government against the unauthorized contracts. The provisions are embodied in the constitution

on the ground of public policy on the ground of protection of general public and these formalities

cannot be waived or dispensed with .

Where a contract is made by tender and acceptance, the acceptance must be made by a duly

authorized person and on behalf of the President, and a valid contract may result fromcorrespondence 16.

A contract complying with the Article can be enforced by or against the government. It is subject

to the general provisions of the contract law ,and its terms cannot be changed by resorting to

Article 14 of the constitution . A contract not complying with any of the conditions of Article

299(1) of the Constitution is not binding on or enforceable by the Government , and is absolutely

void , though not so for collateral purposes , and cannot be ratified. No damages can be claimed

for breach unless the contract is complete under this article17

.

The provisions have been embodied to protect the general public as represented by the

government. The terms of the Article have therefore been held to be mandatory and not merely

directory. This means that a contract not couched in the particular form stipulated by Article

299(1) cannot be enforced at the instance of any of the contracting parties. Neither the

government can be sued and held liable for the breach of such a contract nor can the government

enforce such a contract against the other contracting party 18.

Implied Contract with the Government

15AIR 1962 SC 11316Union of India v Rallia Ram, AIR 1963 SC 168517State of Uttar Pradesh v Kishori Lal , AIR 1980 SC 68018Chatturbhuj v Moreshwar, AIR 1954 SC 236


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In view of Article 299(1) there can be no implied contract between the government and another

person, the reason being that if such implied contracts between the government and another

person were allowed, they would in effect make Article 299(1) useless, for then a person who

had a contract with the government which was not executed at all in the manner provided under

Article 299(1) could get away by saying that an implied contract may be inferred on the facts and

the circumstances of the particular case 19.

It was held by the Hon ble Supreme Court in the case of K.P.Chowdhary v State of Madhya

Pradesh 20that,

In view of the provisions of Article 299(1) there is no scope for any implied contract. Thus no

contract can be implied under this Article.if the contract between the Government and a person is

not incompliance with Article 299(1), it would be no contract at all and would not be enforceableas a contract either by the Government or by the person .

The Court justified this strict view by saying that if implied contracts between the government

and other persons were allowed, they would in effect, make Article 299(1) a dead letter, for then

a person who had a contract with the government which was not executed at all in the manner

provided under Article 299(1) could get away by pleading that an implied contract be inferred

from the facts and circumstances of the case.

However, the Courts have also realized that insistence on too rigid observance of all the

conditions stipulated in Article 299 may not always be practicable. Hundreds of government

officers daily enter into a variety of contracts, often of a petty nature, with private parties. At

times, contracts are entered through correspondence or even orally. It would be extremely

inconvenient from an administrative point of view if it were insisted that each and every contract

must be effected by a ponderous legal document couched in a particular form 21.

The judicial attitude to Article 299 has sought to balance two motivations:

19D.D. Basu, Comentry on the Constitution of India, Calcutta, 1989, p145920AIR 1967 SC 20321M.P.Jain; Indian Constitutional Law; 5th Ed; p1803


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On the one hand, to protect the Government from unauthorized contracts,on the other hand, to

safeguard the interests of unsuspecting and unwary parties who enter into contracts with

government officials without fulfilling all the formalities laid down in the Constitution.

A strict compliance with these conditions may be inequitable to private parties, and at the sametime, make government operations extremely difficult and inconvenient in practice.

Consequently, in the context of the facts of some cases, the courts have somewhat mitigated the

rigours of the formalities contained in Article 299(1), and have enforced contracts even when

there have not been full, but substantial, compliance with the requirements of Article 299(1). In

effect, it may be true to say that the judicial view has oscillated between the liberal and rigid

interpretation of Article 299 22.

A contract to be valid under Article 299(1) has to be in writing. It does not, however, mean that

there should always be a formal legal document between the Government and the other

contracting party for the purpose. A valid contract could emerge through correspondence, or

through offer and acceptance, if all conditions of Article 299(1) are fulfilled.

Under Article 299(1), a contract can be entered into on behalf of the Government by a person

authorized for the purpose by the President, or the Governor, as the case may be. The authority to

execute the contract on behalf of the government may be granted by rules, formal notifications,

or special orders; such authority may also be given in respect of a particular contract or contracts

by the President/Governor to an officer other than the one notified under the rules. Article 299(1)

does not prescribe any particular mode in which authority must be conferred; authorization may

be conferred ad hoc on any person. 23

Principles Underlying Government Contracts:

1. Reasonableness, fairness

The principle of reasonableness and rationality which is legally as well as philosophically an

essential element of equality or non-arbitrariness is projected by Article 14 and it must

characterize every State Action , whether it be under the authority of law or in exercise of

22ibid23State of Bihar v Karam Chand Thapur, AIR 1962 SC 110


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executive power without making of law. The state cannot , therefore , act arbitrarily in entering

into relationship, contractual or otherwise with a third party, but its action must conform to some

standard or norm which is rational an non-discriminatory. The action of the Executive

Government should be informed with reason and should be free from arbitrariness.

It is indeed unthinkable that in a democracy governed by the rule of law the executive

Government or any of its officers should possess arbitrary power over the interests of the

individual. Every action of the executive Government must be informed with reason and should

be free from arbitrariness. That is the very essence of the rule of law and its bare minimal

requirement. And to the application of this principle it makes no difference whether the exercise

of the power involves affection of some right or denial of some privilege 24.

Actions of the State and its instrumentality are bound to be fair and reasonable. The actions are

liable to be tested on the touchstone of Article 14 of the Constitution of India. The State and its

instrumentality cannot be allowed to function in an arbitrary manner even in the matter of

entering into contracts. The decision of the State either in entering into the contract or refusing to

enter into the contract must be fair and reasonable. It cannot be allowed to pick and choose the

persons and entrust the contract according to its whims and fancies. Like all its actions, the

action even in the contractual field is bound to be fair. It is settled law that the rights and

obligations arising out of the contract after entering into the same is regulated by terms andconditions of the contract itself 25.

The requirement of fairness implies that even administrative authority must act in good faith;

and without bias; apply its mind to all relevant considerations and must not be swayed by

irrelevant considerations; must not act arbitrarily or capriciously and must not come to a

conclusion which is perverse or is such that no reasonable body of persons properly informed

could arrive at. The principle of reasonableness would be applicable even in the matter of

exercise of executive power without making law. It is settled principle of law that the courtwould strike down an administrative action which violates any foregoing conditions 26.

24Ramana Dayaram Shetty v International Airport Authority of India, (1979)3 SCC 48925Y.Konda Reddy v State of A.P., AIR 1997 AP 12126M/s. Pyrites, Phosphates & Chemicals Ltd. v. Bihar Electricity Board, AIR 1996 1568


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The duty to act fairly is sought to be imported into the contract to modify and alter its terms and

to create an obligation upon the State which is not there in the contract. The Doctrine of fairness

or the duty to act fairly and reasonably is a doctrine developed in the administrative law field to

ensure the Rule of Law and to prevent failure of justice where the action is administrative in

nature. Just as principles of natural justice ensure fair decision where the function is quasi-

judicial, the doctrine of fairness is evolved to amend, alter or vary the express terms of the

contract between the parties. This is so, even if the contract is governed by statutory provisions 27.

In a democratic society governed by the rule of law, it is the duty of the State to do what is fair

and just to the citizen and the State should not seek to defeat the legitimate claim of the citizen

by adopting a legalistic attitude but should do what fairness and justice demand 28.

1. Public Interest

Tate owned or public owned property is not to be dealt with at the absolute discretion of the

executive. Certain percepts and principles have to be observed. public interest is the paramount

consideration. There may be situations where there are compelling reasons necessitating the

departure from the rule, but there the reasons for the departure must be rational and should not be

suggestive of discrimination. Appearance of public justice is as important as doing justice.

Nothing should be done which gives an appearance of bias, jobbery or nepotism.

The consideration to weigh in allotting a public contract are and have to be different than in case

of a private contract as it involves expenditure from the public exchequer. The action of the

public authorities thus have to be in conformity with the standards and norms which are not

arbitrary, irrational or unreasonable. And whenever the authority departs from such standard or

norms, the Courts intervene to uphold and safeguard the equality clause as enshrined in Article

14 of the Constitution and strike down actions which are found arbitrary, unreasonable and

unfair and prone to cause a loss to the public exchequer and injury to public interest. still be

liable to quashment for being unfair, unreasonable, discriminatory and violative of the guarantee

contained in Article 14.

2. Equality, non-arbitrariness

27Assistence Excise Commissioner v Issar Peter, AIR 1994 SCW 261628M/s. Hindustan Sugar Mills v State of Rajasthan, AIR 1981 SC 1681


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From a positivistic point of view, equality is antithetic to arbitrariness. In fact, equality and

arbitrariness are sworn enemies; one belonging to the rule of law in a republic, while the other, to

the whim and caprice of an absolute monarch. Where an act is arbitrary, it is implicit in it that it

is unequal both according to political logic and constitutional law and is violative of Article 14.

the principle of reasonableness, which legally as well as philosophically, is an essential element

of equality or non-arbitrariness pervades Article 14 like a brooding omni-presence and the

procedure contemplated by Article 21 must answer the test of reasonableness in order to be in

conformity with Article 14. 29

3. Contractual Liability

Article 299(2) immunizes the President, or the Governor, or the person executing any contract on

his behalf, from any personal liability in respect of any contract executed for the purposes of the

Constitution, or for the purposes of any enactment relating to Government of India in force. This

immunity is purely personal and does not immunize the government, as such, from a contractual

liability arising under a contract which fulfills the requirements under Article 299(1).

The governmental liability is practically the same as that of a private person, subject, of course,

to any contract to the contrary 30.

In order to protect the innocent parties, the courts have held that if government derives any benefit under an agreement not fulfilling the requisites of Article 299(1), the Government may be

held liable to compensate the other contracting party under S.70 of the Act, on the basis of quasi-

contractual liabilities, to the extent of the benefit received. The reason is that it is not just and

equitable for the government to retain any benefit it has received under an agreement which does

not bind it. Article 299(1) is not nullified if compensation is allowed to the plaintiffs for work

actually done or services rendered on a reasonable basis and not on the basis of the terms of the

contract 31.

Section 70 lays down three conditions namely:

1. a person should lawfully do something for another person or deliver something to him;

29Maneka Gandhi v Union of India, AIR 1978 SC 59730State of Bihar v Abdul Majid, AIR 1954 SC 24531J.N. Pandey Constitutional Law of India, Allahabad : Central Law Agency,2003, p467


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2. in doing so, he must not intend to act gratuitously;

3. the other person for whom something is done or to whom something is delivered must enjoy

the benefit thereof.

The Courts have adopted this view on practicable considerations. 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 to the provisions under Article 299. In such a

case, if what has been done is for the benefit of the government for its use and enjoyment, and is

otherwise legitimate and proper, Section 70 of the Act should step in and support a claim for

compensation made by the contracting parties notwithstanding the fact that the contract in

question has not been made as per the requirements of Article 299.If Section 70 was to be held in

applicable, it would lead to extremely unreasonable circumstances and may even hamper the

working of government. Like ordinary citizens even the government should be subject to the

provisions of Section 70 32.

Similarly, if under a contract with a government, a person has obtained any benefit, he can be

sued for the dues under Section 70 of the Act though the contract did not confirm to Article 299.

if the Government has made any void contracts it can recover the same under Section 65 of the

Act.

It needs to be emphasized that Section 70, Contract Act, does not deal with the rights and

liabilities of parties accruing from that from relations which resemble those created by contracts.

Thus, in cases falling under Section 70 , the person doing something for another cannot sue for

specific performance of the contract nor can he ask for damages for breach of the contract for a

simple reason that no valid contract exists between the parties. 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. Section 70 deals with cases where a

person does a thing not intending to act gratuitously and the other enjoys it.

Section 70, in no way detracts from the binding character of Article 299(1). The cause of action

for the respondent s claim under Section 70 is not any breach of contract by the government. In

32State of West Bengal v B.K. Mandal, AIR 1962 SC 152


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fact, the claim under Section 70 is based on the assumption that the contract in pursuance of

which the respondent has supplied the goods, or made the construction in question, is ineffective

and, as such, amounts to no contract at all. Thus, Section 70 does not nullify Article 299(1). In

fact, Section 70 may be treated as supplementing the provisions under Article 299(1).What

Section 70 prevents is unjust enrichment and it as much to individuals as to corporations and

governments 33.

33ibid


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LEADING CASE LAWS

In the case of State of Bihar v Majeed 34,







the ordinary law of contract .

In the case of Bhikaraj Jaipuria v Union of India 35


it is clear from the words expressed to be made and executed that there must be a formal

written contract. The provisions of Article 299(1) are mandatory in character and any

contravention thereof nullifies the contract and makes it void. The provisions of Article 299(1)

have not been enacted for the sake of mere form but they have been enacted for safeguarding the

Government against the unauthorized contracts. The provisions are embodied in the constitutionon the ground of public policy on the ground of protection of general public and these formalities

cannot be waived or dispensed with .

In the case of K.P.Chowdhary v State of Madhya Pradesh 36


In view of the provisions of Article 299(1) there is no scope for any implied contract. Thus no

contract can be implied under this Article if the contract between the Government and a person isnot incompliance with Article 299(1), it would be no contract at all and would not be enforceable

as a contract either by the Government or by the person .

34AIR 1954 SC 786

35(1962)2 SCR 880

36AIR 1967 SC 203


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The Court justified this strict view by saying that if implied contracts between the government

and other persons were allowed, they would in effect, make Article 299(1) a dead letter, for then

a person who had a contract with the government which was not executed at all in the manner

provided under Article 299(1) could get away by pleading that an implied contract be inferred

from the facts and circumstances of the case.

However, the Courts have also realized that insistence on too rigid observance of all the

conditions stipulated in Article 299 may not always be practicable. Hundreds of government

officers daily enter into a variety of contracts, often of a petty nature, with private parties. At

times, contracts are entered through correspondence or even orally. It would be extremely

inconvenient from an administrative point of view if it were insisted that each and every contract

must be effected by a ponderous legal document couched in a particular form.

In Bhim Singh v. State of Jammu and Kashmir, the Supreme Court awarded a sum of Rs. 50,000

to the petitioner as compensation for violation of his fundamental right of personal liberty under

Art. 21 of the Constitution. The petitioner who was an MLA was illegally arrested and detained

in police custody and deliberately prevented from attending the session of the Legislative

Assembly.

In Peoples Union for Democrat Rights v. Police Commissioner 37, Delhi Head Quarter, a labourer

was taken to the police station for doing some work. He was severely beaten when he demanded

wages and as a result he died. The Court directed the government to pay Rs. 75,000 as

compensation to the family of the deceased. Likewise, in Saheli v. Commissioner of Police 38, the

Supreme Court in a public interest litigation directed the Delhi Administration to pay Rs. 75,000

as exemplary compensation to the mother of 9 year old child who died due to beating by the

Delhi Police Officer.

In Nilbati Behra v. State of Orissa, the petitioner s son aged 22 years was arrested by police in

connection with investigation of an offence of theft in a village and kept in police custody with

his hands tied. On the next day his body was found by the side of the railway track. The mother

of the deceased sent a letter to the Court alleging custodial death of her son claiming

37(1989) 4 SCC 73038

AIR 1990 SC 513


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compensation on the ground of violation of Art. 21 of the Constitution. The Court treated this

letter as a writ petition under Art. 32 and awarded Rs. 1.15 Lakhs as compensation to the mother

of the deceased. The Court said that proceeding under Art. 32 and Art. 226 is a remedy available

in Public Law based on strict liability for contravention of fundamental rights to which the

principle of sovereign immunity does not apply even though it may be available in Private law

based on an action based on tort.

In Rudal Shah v. State of Bihar 39, the Court directed the State of Bihar to pay compensation of

Rs. 35,000 to the victim of tortuous acts done by government employees during sovereign

functions. The petitioner had already completed his sentence but the prison officials did not take

care to release him. He was kept in jail for 14 years after his acquittal by the Court.

In Govind Kumar v. State of Rajasthan 40, a 4 years child had died on account of drowning in a

pond in a small village constructed by the Municipality. The pond was not surrounded by wall by

the Municipality. The boy was playing nearby the pond because he was not knowing the

consequences. The Rajasthan High Court held that the State was vicariously liable to pay interim

compensation of Rs. 40,000. It is the duty of the State and Municipality to protect area of pond in

a small village.

In Union of India v. Association of Victims of Uphar Tragedy 41, a transformer installed by the

Delhi Vidyut Board (DVB) in the ground area of Uphar Cinema Theatre caught fire and due to

oil leakage from the burning transformer, the fire spread causing fire to illegally cars parked

there. The burning of the transformer oil, diesel and petrol from the parked vehicles and foam

and other articles stored in the parking area generated huge quantity of fumes and smokes

consisting of carbon monoxide and other poisonous gases blowing in the hall from the entry and

exist point. The worst affected part was balcony. The electricity also went off and the people

were groping in the dark to get out. There were 59 deaths in the balcony and stairwell due to

asphyxiation by inhaling the noxious fumes and smokes and 103 persons trying to get out wereinjured. The High Court awarded punitive damages against the owner of Uphar Theatre, DVB,

Municipal Corporation Delhi (MCD), Fire Force and Licensing Authority. The Supreme Court

39AIR 1993 SC 1086

40AIR 2009 Raj. 61

41AIR 2012 SC 100


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held that the High Court committed a serious error in making the licensing authority and the

MCD liable to pay compensation to the victims jointly and severally with the licensees and

DVB. The cause of the fire was not attributable to the licensing authority and MCD. It was not

proper to award damages against public authorities merely for some inaction in performance of

statutory duties or functions. The Courts could not award damages in performance of statutory

duties or functions unless there was malice or conscious abuse Merely because they could have

performed their duties better or more efficiently, theft could not be liable to pay compensation to

the victims of tragedy 42.

As regards the compensation to be awarded by way of public law remedy, the court held that It

need not only be a normal palliative amount but something more. It can be by way of monetary

amounts for the wrongdoer or by way of exemplary damages, exclusive of any amountrecoverable in a civil action based on tortious liability. It was also not proper to hold that every

person who purchased a balcony ticket had an income Rs. 15,000 per month in 1997 as this was

a big amount at that time and to determine the compensation at the rate Rs. 18 lakhs in case of

persons above the age of 20 years and Rs. 19 lakhs to the persons below that age was not proper

in public law remedy. The Supreme Court, reduced it to Rs. 15 lakhs in case of persons above

the age of 20 years and Rs. 7.50 lakhs in case of persons below that age. The Court did not

disturb Rs. 1 lakh compensation to the injured persons. The victims or their relatives were given

liberty to seek high compensation if they were not satisfied with such compensation. It was also

held that it would be unsafe to use high income as the determinative factor in awarding

compensation to large group of persons by way of public law remedy.

42(2012) SCC 853


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GOVERNMENT LIBILITY

Government Contract, Mode of execution, Validity:

Where the contract not signed by a duly competent officer on behalf of the Governmentundertaking, the doctrine of indoor management cannot be extended to formation of the

contract or the essential terms of the contract unless the contract with other party is duly

approved and signed on behalf of a public undertaking or the Government with its seal by an

authorised or competent officer. It would be hazardous for public undertaking or Government or

the instrumentalities to deal on contractual relation with third parties. The contract must be

signed on behalf of undertaking or the Government with its seal by y competent officer 43.

Government Contract, Authority to Contract on Behalf of Government:

The provisions of Art. 299(1) were not inserted for the sake of mere form. They are there to

safeguard the interest of the Government against unauthorized contract. If the contract is

unauthorized or in excess of authority it is right that the Government should be safeguarded. The

officer entering into a contract on behalf of the Government can always safeguard himself by

having recourse to the proper form. There are large number of contracts which are not in the

proper form and an innocent contracting party should not suffer because of the defect in the form

and if there is no other defect or objection, the Government will always accept the responsibility.In Chattnrhhuj Jasani, the Chairman of the Board of Administration acted on behalf of the Union

Government and he had authority to enter into contract. The only flaw was that the contracts

were not in proper form. It was held that the Government may not be bound by the contract but

such contract cannot be said to be void. However, such contracts can be ratified by the

Government especially if that was for the benefit of the Government. When the Government

officer acts in excess of the authority the Government is bound to ratify the excess. The only

consequence is that the Union of India cannot be sued for the contract by reason of Art. 299( 1)

of the Constitution.

43State of U.P. v Rajktya Nirman Nigam , 1996 (2) SCC 667


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Government Contract is Largesse:

Largesse means a privilege or a monopoly given by the state to a private agency to conduct a

welfare activity. A fair price shop or a milk booth is varieties of such largesse. Thus where the

plaintiff was appointed a distributor of certain controlled commodities, namely salt on terms andconditions stated in the letter of appointment and one of the conditions was that she was

required to keep in stock a quantity fixed by the government, she could not recover the loss

incurred by her as a result of the decontrol of the commodity by the government. 44 In Mohd

Rajab Gujari v J&K 45 , the appellant had entered into a contract with the government for the sale

of milk and one of the conditions of the contract was that if milk became a contract was that if

milk became a controlled article during the period of agreement, the contractor shall be paid at

the controlled rate, it was held that she was entitled to get the controlled price which was higherthan the stipulated price. However, when there is an absence of any statutory authority the

government cannot alter the terms of the contract and is bound by it. 46 The power of the

government to refuse to fulfill a contractual obligation on the ground of change in policy or

legislative provision is however subject to the doctrine of estoppel. Further, if the government

has given rise to legitimate expectations, it might not be allowed to disown its liability. This will

be discussed later in the subsequent chapters.

Contracts and Writs:

It is extremely rare for disputes arising out of the performance of government contracts to be the

subject of litigation. Such disputes are usually resolved by informal negotiation between the

government and the contractor or, if this does not succeed, by arbitration. 47 An important reason

for this is that the relation between government and its contractors is often more in the nature of

a long term cooperative venture for mutual advantage than a one-off commercial deal. 48 But the

other side of this aspect can be that when contractual disputes are settled without recourse to a

44Barada Kanta Das v Assam AIR 1956 Assam 23 45(1974) 2 SCC 19046Madras v Madras Electric Tramways Co Ltd AIR 1957 Mad 169 47Peter cane , Administrative Law , Oxford University Press, 4 th Edition,200048Within such a relationship, recourse to courts to settle disagreements will often seem inappropriate and possiblycounter- productive.


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third party adjudicator, there is a danger that any inequalities of bargaining power between the

parties may distort the outcome.

In general the law governing the public authorities is same as that of private individuals but with

a special qualification. This qualification is easy to state but not that easy to apply. The reason being public authorities have to see greater public interest and welfare of the general public in

fulfilling there obligations to the other contracting party. This is called the public policy defence.

But the sad point is that the limit and scope of this defence cannot be defined.

Restitution:

The law of restitution is the law of gains-based recovery. It is to be contrasted with the law of

compensation, which is the law of loss-based recovery. For instance, Joseph Charles breaks intoa jewellery store and steals $5000 worth of jewellery. In the process, he does $1000 worth of

damage to the store s back door and the showcases he broke. Later, Joseph Charles is arrested. If

Joseph Charles is forced to pay restitution, he must pay back his gains, $5000 (or just give back

the jewellery). If he is forced to pay compensation, he must pay $6000, which is the store s total

But the question arises as to whether government is responsible to pay back the extra amount

taken by a private individual in case the act under which it charged was held to be ultra viresThis concept is not only related to money but also covers property in the ambit. If the seizure of

property is wrongful, the owner would be entitiled to the return of the seized property, or, in the

alternative, the payment of the price thereof. 49

An example of a simple case of restitution is furnished by Kerala v Kt P. Govindan Exporter 50

Restitution, like other legal responses, can be triggered by any one of a variety of causativeevents. These are events in the real world which trigger a legal response. Broadly speaking, an

obligation to make restitution can be triggered by two different types of causative event, one is

wrong and another is unjust enrichment Prior to the Commencement of the Constitution.

49Bishamber dayal Chandra mohan v state of Uttar Pradesh, AIR 1982 SC 1983 at p4945AIR 1975 SC 152


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Before the commencement of the constitution also, the liability for the breach of contract was

recognized. East India Company was established in India, essentially for commercial activities.

Also the Supreme Court of Calcutta held that the company was subjected to the jurisdiction of

the municipal courts in all matters as a private trading company. 51 Not only in this, but there are

number of other instances where such liability of the state has been recognized.

Quasi-Contractual Liability, Doctrine of Unjust Enrichment:

If the provisions of article 299(1) are not complied with, the contract stands unenforceable. In

these circumstances the court has applied the provisions of Section 70 of the Indian Contract Act

and has held that the government is liable to compensate the other contracting party on the basis

of quasi-contractual liability. What Section 70 provides is that if the goods delivered are

accepted or the work done in voluntarily enjoyed, then the liability to pay compensation for the

enjoyment of the said goods or the acceptance of the said work arises. Thus when they claim for

compensation under section 70, it is not on the basis of any subsisting contract between the

parties, but on the basis of the fact that something was done by one party for the other and the

said work so done has been voluntarily accepted by the other party. The Section 70 of the

Contract Act prevents unjust enrichment.

The doctrine applies as much to corporation and the Government as to private individuals. The

provision of Section 70 may be invoked by the aggrieved party if the following three conditions

is that a person should lawfully do something for another person or deliver something to him.

The second condition is that in doing the said thing or delivering the said thing he must not

intend to act gratuitously, and the third is that the other person for whom something is delivered

must enjoy the benefit thereof. If these three conditions are satisfied, Section 70 imposes upon

the latter person the liability to make compensation to the former in respect of, or to restore, the

things so done or delivered.

46Moodlay v Morton, 1785 1 Bro CC 469


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Remedies for breach of Contract:

If a person enters into a contract with the govt., he is entitled to certain benefits where under, he

can approach the court of law. The question however is as to whether he can file a petition under

art 32 or art 226 of the constitution of India. In R.K. Aggarwal v. State of Bihar 228 , three cases of breach of contract were laid down. They are:-

1) Where a petitioner makes grievance or breach of promise on there part of the state incases where on assurance of promise made by the state he has acted to his prejudice, but

the agreement is within the meaning of Article299 of the Constitution.

2) Where the contract entered into between the person agreed and the state is in exercise ofa statutory power a under certain acts framed there under and the petitioner alleges a

breach on the part of the state.

3) Where the contract entered into between the state and the person agreed is not statutory but purely contractual and the rights and liabilities of the parties are governed by the

terms of the contract, and the petitioner complains about breach of such contract by the

state.

In the first type of obligation article 226 can be applied by applying the doctrine of promissory

estoppels. In the second case a petition can be maintainable because the action of publicauthority is challenged. As far as the third case is concerned, the rights of the parties flow from

mere terms of the contract entered into by the state and the party to such contract cannot invoke

writ jurisdiction of the Supreme Court under Article 32 or of a high court under Article 226 of

the Constitution of India.

Period of Limitation for Suits Against the Government:

Article 149 of the first schedule of the limitation act 1890 provides a longer period of limitation

for suits against the government. The limitation act 1963 contains a similar provision under

article 112. It applies to the central as well as the state government. 52 The application of this

provision is confined to those cases in which a private person could have brought the

52The Longer limitation period was based on the maxim nulla tempus occuritregi, i.e. no time affects the crown.


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suit. 53Under section 5 of the limitation act it is stated that a suit will be allowed after the expiry

of limitation period only if the court is satisfied that there was a sufficient cause for delay. 54

Effects of Non Compliance:

Provisions of 299(1) are mandatory and not directory. They have to be complied with. They

have been inserted in order to protect the government from its unauthorized actions. Thus if this

is not fulfilled the contract is not in accordance with law and the same is not enforceable by or

against the government. 55 In Mulchand v State of MP the SC held that, if the contract was not in

accordance with the constitutional provisions, in the eye of law, there was no contract at all and

the question of ratification did not arise.

Effect of Valid Contracts:

If the provisions of article 299(1) are complied with, the contract is valid and it can be enforced

by or against the government and the same is binding on the parities. 56 Article 299(2) provides

that neither the president nor the governor shall be personally liable in respect of any contract

executed for the purpose of the constitution or for the purpose of any enactment relating to the

government of India. It also grants immunity in favour of a person making or executing any such

contract on behalf of the president or the governor from personal liability.

Public Interest Litigation, Award of Contract by Government, Maintainability:

When a writ petition is filed in the High Court challenging the award of a contract by a public

authority or the State, the court must be satisfied that there is some element of public interest

involved in entertaining such a petition. If, for example, the dispute is purely between two

tenders, the court must be very careful to see if there is any element of public interest involved in

the litigation. A mere difference in the prices offered by the two tenders may or may not be

decisive in deciding whether any public interest is involved in intervening in such a commercialtransaction. It is important to bear in mind that by Court intervention, the proposed project may

53Such limitation would, however, not apply against the prerogative rights of the state such as the right to levy atax or assess the revenue on land.54 Nav Ratanlal v State ofRajasthan, AIR 1961 SC 1704 55K.P. Chowdhary v state of M.P., AIR 1967 SC 20356State of Bihar v Abdul Majid, AIR SC 245; State of Assam v K. P. Singh, AIR 1953 SC 309


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be considerably delayed thus escalating the cost far more than any saying which the court would

ultimately effect in public money by deciding the dispute in favour of one tender or the other

tender. Therefore, unless the court is satisfied that there is a substantial amount of public interest,

or the transaction is entered into mala fide, the Court should not intervene under Article 226 in

disputes between two rival tenders.

When a petition is filed as a public interest litigation challenging the award of a contract by the

State or any public body to a particular tender, the Court must satisfy itself that the party which

has brought the litigation is litigating bona fide for public good. The public interest litigation

should not be merely a clock for attaining private ends of a third party or of the-party bringing

the petition. The Court can examine the previous record of public service rendered by the

organization bringing public interest litigation. Even when a public interest litigation isentertained, the Court must be careful to weigh conflicting public interests before intervening.

Intervention by the Court may ultimately result in delay in the execution of the project. The

obvious consequence of such delay in the contemplated public service becoming available to the

public. If it is a power project which is thus delayed, the public may lose substantially because of

shortage in electricity supply and the consequent obstruction in industrial development. If the

project is for the construction of a road or an irrigation canal, the delay in transportation facility

becoming available or the delay in water supply for agriculture being available, can be a

substantial setback lo the country s economic development. Where the decision has been taken

bona fide and a choice has been exercised on legitimate considerations and not arbitrarily, there

is no reason why the court should entertain a petition under Article 226.

Hence before entertaining a writ petition and passing any interim orders in such petitions, the

Court must carefully weigh conflicting public interest. Only when it comes to a conclusion that

there is an overwhelming public interest in entertaining the petition, the court should intervene.

Where there is an allegation of mala fide or an allegation that the contract has been entered intofor collateral purposes and the court is satisfied on the material before it that the allegation needs

further examination, the court would be entitled to entertain the petition. But even here, the court

must weigh the consequences in balance before granting interim orders.


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JUDICIAL REVIEW IN GOVERNMENT CONTRACTUAL MATTERS

Judicial quest in administrative matters has to find the right balance between the administrative

discretion to decide matters contractual or political in nature, or issues of social policy and the

need to remedy any unfairness. A State need not enter into contract with anyone, but when if

does so it must do so fairly without discrimination and without unfair procedure; and its action is

subject to judicial review under Article 14 of the Constitution of India 57.

Where the Government is dealing with the public, whether by way of giving jobs or by entering

into contracts or issuing quotas or licenses or granting other forms of largess, it cannot arbitrarily

use its power of discretion and in such matters must conform to certain standards or norms which

are not arbitrary, irrational or irrelevant.

The principles of judicial review would apply to the exercise of the contractual powers by the

Government bodies in order to prevent arbitrariness or favouritism. However, there are inherent

limitations in the exercise of that power of judicial review.

The judicial power of review is exercised to rein any unbridled executive functioning. The

restraint has two contemporary significances. One is the ambit of judicial intervention; the other

covers the scope of the Court s ability to quash an administrative decision on its merits. These

restraints bear the hallmark of judicial control over administrative action. Judicial review isconcerned with not reviewing the merits of the decision in support of which the application for

judicial review is made, but the decision making process itself 58.

It is not for the Court to determine whether a particular policy po particular decision taken in the

fulfilment of that policy is fair. It is only concerned with the manner in which the decisions have

been taken 59. The extent of the duty to act fairly will vary from case to case. Shortly put, the

grounds upon which an administrative action is subject to control by judicial review can be

classified under

1. Illegality: This means the decision-maker must understand correctly the law that regulates his

decision-making power and must give effect to it.

57Eurasian Equipment & Chemicals Ltd v State of West Bengal,[1975]2 SCR 67458ibid59J.N. Pandey Constitutional Law of India, Allahabad : Central Law Agency,2003, p487


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2. Irrationality

3. Procedural impropriety

The above are only the broad grounds but it does not rule out the addition of further grounds in

course of time.

With respect to the judicial review of administrative decisions and exercise of contractual powers

by Government bodies, the Hon ble Supreme Court has held,

The Government must have freedom of contract. In other words, a fair play in the joints is a

necessary concomitant for an administrative body functioning in the administrative sphere or

quasi-administrative sphere. However, the decision must not only be tested by the application of

the Wednesbury principle of reasonableness (including its other facts) but must be free from

arbitrariness not affected by bias or actuated by malafides 60.

While exercising the power of judicial review, in respect of contracts entered into on behalf of

the State, the Court is concerned primarily as to whether there has been any infirmity in the

decision making process . By way of judicial review the Courts cannot examine the details of

the terms of the contract which have been entered into by the public bodies or the State. Courts

have inherent limitations on the scope of any such enquiries. But at the same time the Courts can

certainly examine whether decision making process was reasonably rational, not arbitrary and

violative of Article 14 of the Constitution. If the contract has been entered into without ignoring

the procedure which can be said to be basic in nature and after an objective consideration of

different options available, taking into account the the interest of the State and the public, then

Court cannot act as an appellate authority by substituting its opinion in respect of the selection

made for entering into such contract. But once the procedure adopted by the authority for the

purpose of entering into the contract is held to be against the mandate of Article 14 of the

Constitution, the Court cannot ignore such action saying that the authorities concerned shouldhave some latitude or liberty in contractual matters and any interference by the Court amounts to

encroachment on the exclusive right of the executive to take such decision 61. The doctrine that

the powers must be exercised reasonably has to be reconciled with the no less important doctrine

60Tata Cellular v Union of India, AIR 1996 SC 1161Sterling Computers Ltd v M/s M&N Publications Ltd, AIR 1996 SC 51


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that the Court must not usurp the discretion of the public authority which the Parliament has

appointed to take the decision. Within the bounds of legal discretion is the area in which the

deciding authority has genuinely free discretion. If it passes these bounds, it acts ultra viruses.

The decisions which are extravagant or capricious cannot be legitimate. But if the decision is

within the confines of reasonableness, it is no part of the Court s function to look further into its

merits 62.

62H.M. Seervi, Constitutional law of India, Bombay: N.M. Tripathi, 1991, p1798


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AUSTRALIA:

The Judiciary Act, 1963 lays down the law relating to government liability. In the case of Sargood

Bros. v. Commonwealth 66 it was held that an action lies against the Commonwealth in contract or

tort, in the ordinary manner, by a subject or a state. Similarly, in the case of Commonwealth v.

New South Wales 67, it was held that a State may be sued in contract or in tort without its consent.

Thus the maxim, the King can do no wrong, has not been applied in Australia.

INDIA:

The words had not this Constitution been enacted in Article 300(1) indicate that the basis of

sueability of the state in India is historical. In order to appreciate the significance of these words,

we must trace the history of the Indian Administration from the time of the East India Company,when the Court was of the view that even though the East India Company has sovereign powers,

if it contracts in civil capacity and if it breaks its contract it would be held answerable.

Later the Government of India Acts (Section 30 of Act of 1915 and Section175 of Act of 1935)

expressly empowered the Government to enter into contracts with private individuals and the

corresponding provision in the Constitution is Article 299(1). In all these Acts it was provided

that the person making the contract on behalf of the Government would not be personally liable in

respect thereof.The Indian Contract Act, 1872 does not prescribe any form for entering into contracts. A contract

may be oral or in writing. It may be expressed or be implied from the circumstances of the case

and the conduct of the parties. But the position is different in respect of Government Contracts.

A contract entered into by or with the Central or State Government has to fulfill certain

formalities as prescribed by Article 299 of the Indian Constitution. In the case of State of Bihar

v. Majeed 68 the Hon ble Supreme Court held that:





66(1910) 18 CLR 258.67(1923) 32 CLR 200.68AIR 1954 SC 786


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the ordinary law of contract ..

As regards the interpretation of contract, there is no distinction between the contracts to which

one of the parties is the Government and between the two private parties. Though there is hardly

any distinction between a contract between private parties and Government contract so far as

enforceability and interpretation are concerned, yet, some special privileges are accorded to the

Government in the shape of special treatment under statutes of limitation. Section 112 of the

Limitation Act, 1963 contains provision for longer period of limitation of suits on or behalf of

the State. The longer limitation period was based on the common law maxim nulla tempus

occurit regi i.e. no time affects the Crown. Some privileges are also accorded to Government in

respect of its ability to impose liabilities with preliminary recourse to the courts. This probably is

because of doctrines of executive necessity and public interest 69.

The executive power of the Union of India and the States to carry on any trade or business,

acquire, hold and dispose property and make contracts is affirmed by Article 298 of the

Constitution of India. If the formal requirements required by article 299 are complied with, the

contract can be enforced against the Union or the States. 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). Therehas been a plethora of cases on this point, yet the law is still not well settled.

69H.M. Seervi, Constitutional Law of India, Bombay: N.M. Tripathi, 1991, p1768


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CONCLUSION

The State cannot, therefore , act arbitrarily in entering into relationship, contractual or otherwise

with a third party, but its action must conform to some standard or norm which is rational an non-

discriminatory. The action of the Executive Government should be informed with reason and

should be free from arbitrariness. The test of liability of the State should not be the origin of the

functions but the nature of the activity carried on by the State. Despite the clear mandate for

legislation provided under Article 300, nothing has done in this regard. Even the Government

(Liability in Tort Bill), 1967 which was introduced in the Parliament had not been passed due to

the resistance of various State Governments.

The Government was of the view that the financial burden on the State would be more than it

could possibly handle. In absence of a clear and concise statute that clearly defined thecontractual liability of the State, the pronouncements made by the Judiciary assume all the more

importance. Judicial quest in administrative matters has to find the right balance between the

administrative discretion to decide matters contractual or political in nature, or issues of social

policy and the need to remedy any unfairness. A State, when it enters into a contract, must do so

fairly without discrimination and without unfair procedure; and its action is subject to judicial

review under Article 14 of the Constitution of India. The judicial power of review is exercised to

rein any unbridled executive functioning. The restraint has two contemporary significances. One

is the ambit of judicial intervention; the other covers the scope of the Court s ability to quash an

administrative decision on its merits. These restraints bear the hallmark of judicial control over

administrative action. Judicial review is concerned with not reviewing the merits of the decision

in support of which the application for judicial review is made, but the decision making process

itself and therefore judicial review can be a sufficient tool to decide the ambit of contractual

liability of the State.


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BIBLIOGRAPHY

Books:

1. Seervi, H.M., Constitutional Law of India Vol. I & II, III, Bombay: N.M. Tripathi, 1991.2. Basu, Durga Das, Commentary on the Constitution of India, Calcutta: Debidas Basu,

1989.

3. Bakshi, P.M., The Constitution of India, Delhi: Universal Law Publishing, 2002

4. M.P Jain, Indian Constitutional Law , 5th Edition, Wadhwa & Co. Law Publishers,

Nagpur, 2003.

5. Pandey, J.N. Constitutional Law of India, Allahabad : Central Law Agency,2003.

contractual libility of government

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