CONTRACTUAL LIABILITY Pre-constitutional view-even prior to the commencement of the Constitution of India, the liability of the govt for breach of contract was recognised. Such liability was given statutory recognition as well- Govt of India Acts of 1833, 1858,1915 & 1935. Constitutional Provisions-Contractual liability of the Union of India and States is recognized by the Constitution itself. Article 298 expressly provides that the executive power of the Union and of each State shall extend to the carrying on of any trade or business and the acquisition, holding and disposal of property and the making of contracts for any purpose. Article 299(1) prescribes the mode or manner of execution of such contracts. Requirements - Article 299 lays down the following conditions and requirements which must be fulfilled in contracts made by or with the Union or a State: 1. Every contract must be expressed to be made by the President or the Governor (as the case may be); 2. Every contract must be executed by a person authorized by the President or the Governor (as the case may be); and 3. Every contract must be expressed in the name of President or the Governor (as the case may be).
 Written Contract - A contract to be valid under Article 299(1), must be in writing. The

words ‘expressed to be made’ and ‘executed’ in this article clearly go to show that the must be a formal written contract executed by a duly authorized person. Consequently, if there is an oral contract, the same is not binding on the Government.
 Execution by authorized person-The second requirement is that such a contract can be

entered into on behalf of the Government by a person authorized for that purpose by the President or the Governor as the case may be. If it is signed by an officer who is not authorized by the President or Governor, the said contract is not binding on the Government and cannot be enforced against it. Case law on point is State of Bihar vs. Karam Chand Thapar where Supreme Court held that the agreement to arbitrate dispute was signed by the Executive Engineer who was specifically authorized by the Governor.
 Expressed in the name of President or Governor-The last requirement is that such a

contract must be expressed in the name of the President or the Governor, as the case may be. Thus, even though such a contract is made by an officer authorized by the Government in this behalf, it is still not enforceable against the Government if it is not expressed to be made ‘on behalf’ of the President or the Governor. Case law on point is D.G. Factory vs. State of Rajasthan, where a contract was entered between a contractor and the govt. the IG of Police signed in his official status without stating “on behalf of governor. The Supreme Court held contract was not enforceable because provisions of Art. 299(1) were not complied with.

They are not inserted merely for the sake of form. the view taken by the Supreme Court was that in case of non-compliance with the provisions of Article 299(1).If a contract between an individual and a Government contains a clause which is arbitrary. 1872 would not apply to such a contract and it could not be enforced against the government officer in his personal capacity. It cannot be enforced by a court of law. 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. Therefore. contracts even though the requirements of Art. in the eye of the law. a contract is unauthorized or in excess of authority. Unconscionable Contracts . the contract is valid and it can be enforced by or against the Government and the same is binding on the parties thereto. But in Mulamchand v. 298 & 299 are not satisfied. State of M. 230(3) of the Indian Contract Act. the contract is not in accordance with law and the same is not enforceable by or against the Government.P. the relations between the contracting parties are no longer governed by the provisions of the Constitution but by the terms and conditions of the contract. Once a legal and valid contract is entered into between the parties.LIABILITY OF THE GOVERNMENT EFFECT - Effect of Non-compliance: -The provisions of Article 299(1) are mandatory and not directory and they must be complied with. even the provisions of S. Formerly. the Government must be protected from being saddled with liability to avoid public funds being wasted. - Estoppel .e. there was no contract at all and the question of ratification did not arise.doctrine of promissory estoppel applies in case of written & un-written govt. Effect of Valid contract: If the provisions of Article 299(1) are complied with. unconscionable or opposed to public policy. a suit could not be filed against the Government as the contract was not enforceable. but to protect the Government against unauthorized contracts. but the Government could accept the liability by ratifying it. It also grants immunity in favour of a person making or executing any such contract on behalf of the President or the Goveror from personal liability. i. Government each a private party. unreasonable. . if any of the aforesaid conditions is not complied with. Therefore. the Supreme Court held that if the contract was not in accordance with the constitutional provisions. If.

’ The word 'otherwise' suggests that the said liability may arise in respect of tortuous acts also. . it is really the liability of the State for the tortious acts of its servants that has to be considered. It provides that the liability of the Union of India or of a State Government will be the same as that of the Dominion of India and the Provinces before the commencement of the Constitution (if this Constitution had not been enacted). Thus. A Constitution Bench of the Supreme Court held the State vicariously liable for the rash and negligent act of the driver. can sue and be sued. it has to act through human agency. Constitutional Provisions – Under Article 294(b) of the Constitution. The doctrine of vicarious liability is based on two maxims: • Respondeat superior (Let the principal be liable). In other words. He died and his widow sued the driver and the State for damages. By his rash and negligent driving of the jeep a pedestrian was knocked down. through its servants. after repairs. it refers to when the State can be held vicariously liable for the wrongs committed by its servants or employees. They can file suits and suits can be filed against them. In State of Rajasthan v. the aggrieved party. the master may be held liable for the torts committed by his servant in the course of employment. Under Article 300(1). Vidhyawati. a jeep was owned and maintained by the State of Rajasthan for the official use of the Collector of a district. with the growth of governmental functions the general immunity afforded to the crown in tortious liability proved to be incompatible with the demands of justice. Indian law-In India. history has traced different path. the liability of the Union Government or a State Government may arise ‘out of any contract or otherwise.LIABILITY OF THE GOVERNMENT TORTIOUS LIABILITY Vicarious liability . i. The driver of the jeep was returning from the workshop. The maxim ‘the King can do no wrong’ has never been accepted in India.the feudal concept “king can do no wrong” ruled the law of tortious liability of State in England. There is no reason why this doctrine should not be applied to the Crown in respect of torts committed by its servants. In fact. if the Crown is not held vicariously liable for such torts. When we discuss the tortuous liability of the State. English law.e. and • Qui facit per alium facit per se (He who does an act through another does it himself). even though it had sustained a legal injury. The Union and the States are legal persons and they can be held liable for breach of contract and in tort. Vicarious liability refers to a situation where one person is held liable for act or omission of other person.Since the State is a legal entity and not a living personality. would be without any effective remedy. inasmuch as the government servant may not have sufficient means to satisfy the judgment and decree passed against him. the position is that the Govt. However. the extent of such liability is fixed. Now.

executive and judicial power whereas the latter can be characterized as analogous to private company. The principle which emerges is that if the function involved is a ‘sovereign function’. state of UP are not applicable. but if it is a ‘non-sovereign function’. but it is a non-sovereign function if it is non-statutory. Conclusion: Recent judicial trend is. the SC held that state is not liable as Police officers were exercising ‘sovereign functions’. in favour of holding the State liable in respect of tortious acts committed by its servants.” . the governmental functions have increased and today. it may be regarded as a sovereign function. e. But this test is equally defective. Chandrima Das where a woman was gang raped by employees of railway in a railway guest house maintained by the Central Govt. In cases of police brutalities. committing assault or beating up prisoners. In a welfare State.g. But the difficulty lies in formulating a definite test or criterion to decide to which category the act belongs. the traditional doctrine of sovereign immunity has no relevance in the modern age when the concept of sovereignty itself has undergone drastic change. undoubtedly. the courts have awarded compensation to the victims. keeping the under-trial prisoners in jail for long periods.LIABILITY OF THE GOVERNMENT Sovereign & non sovereign functions-The Court. etc. The test whether the act in question could have been performed only by the government or also by a private individual is also not helpful in deciding the issue. Rly Board vs.” As was held by the Supreme Court in Nagendra Rao vs State of AP “if a suit is maintainable against the officer personally. the State will be held liable. In the former. the State cannot be held liable in tort. Hence all actions of the Government are now amenable to scrutiny by courts. It observed that the findings of kasturi lal vs. there is no reason to hold that it would not be maintainable against the State. decided to look into the matter of whether the act was sovereign or not. In Kasturilal v State of Up. Sometimes the distinction between sovereign and non-sovereign functions is categorized as regal and non-regal functions. The former is confined to legislative. It is also said that if the act in question is statutory. wrongful arrest and detention. not all the functions performed by the Government are sovereign functions. commercial activities like the running of the Railways. The Law Commission also stated: “The old distinction between sovereign and non sovereign functions should no longer be invoked to determine liability of the State. in subsequent cases. Further. the Government is not liable but in the latter. Sovereignty now vests in the people. The role of the welfare state and its liability was highlighted by the Supreme Court in Chairman. it is liable.

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