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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. Let’s discusses the origin as well as current position of Government contract in the Indian perspective. It analyses the position of Government contracts in India, their statutory as well as judicial recognition and the liabilities on the State owing to the said recognition. Furthermore, discusses various common law principles that govern the contractual liability of the State and make it a necessity in the modern times. The paper criticises the role of the executive and the legislative organs of the Government and concludes that 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.
Introduction
Contractual Liability of the State
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 are done 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 ContractAct,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." 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.
The Indian Position
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 Section 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, 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 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.
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.
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). There has been a plethora of cases on this point, yet the law is still not well settled.
Article 299 of the Constitution provides :
"(1) All contracts made in the exercise of executive power of the union or a state shall be expressed 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 authorise.
The judicial attitude to Article 299 has sought to balance two motivations
I. to protect the Government from unauthorised contracts; and
II. 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.
Under Article 299(1), a contract can be entered into on behalf of the Government by a person aurhorised 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.
Article 300 provides that :
(1) The Government of India may sue or be sued by the name of the Union of India and the Government of a State may sue or be sued by the name of the State and may, subject to any provisions which may be made by Act of Parliament or of the Legislature of such State enacted by virtue of powers conferred by this Constitution, sue or be sued in relation to their respective affairs in the like cases as the Dominion of India and the corresponding Provinces or the corresponding Indian States might have sued or been sued if this Constitution had not been enacted.
(2) If at the commencement of this Constitution :
(1) any legal proceedings are pending to which the Dominion of India is a party, the Union of India shall be deemed to be substituted for the Dominion in those proceedings; and
(2) any legal proceedings are pending to which a Province or an Indian State is a party, the corresponding State shall be deemed to be substituted for the Province or the Indian State in those proceedings.
Principles Underlying Contractual Liability of State
(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 executive power without making of law.
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.
In the case of Y. Konda Reddy v. StateofA.P it was held that 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 and conditions of the contract itself. It is settled principle of law that the Court would strike down an administrative action which violates any foregoing conditions.
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.
(2) Public Interest: 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. Every action of the public authority or of the person acting in public interest or any act that gives rise to public element, should be guided by public interest. If actions bear insignia of public law element or public character they are amenable to judicial review and the validity of such action would be tested on the anvil of Article 14. Distinction between public law and private law remedy is now narrowed down. Appearance of public justice is as important as doing justice. Nothing should be done which gives an appearance of bias, jobbery or nepotism. Person holding public office must exercise his power in public interest and for public good.
(3) Contractual Liability: Article 299(2) immunises 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 immunise 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.
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 with 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 Indian Contract Act, 1872 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 inapplicable, 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
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.
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. What Section70 prevents is unjust enrichment and it as much to individuals as to corporations and Governments. 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.
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 and non- discriminatory. The action of the Executive Government should be
