LAW OF CONTRACTS

Dr. RAM MANOHAR LOHIYA NATIONAL

LAW UNIVERSITY, LUCKNOW

2016
FINAL PROJECT ON “ROLE OF ARTICLE 14
OF THE CONSTITUTION OF INDIA IN
GOVERNMENT CONTRACTS.”

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SUBMITTED TO:
DR. VISALAKSHI VEGESNA
ASSOCIATE PROFESSOR (LAW)

SUBMITTED BY:
VIVASVAN PRAKASH
ROLL NO.: 169
SECTION : “B”

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ACKNOWLEDGMENT

I would like to convey my sincere thanks to my colleagues, who painstakingly

reviewed most of the content Special thanks, are due to our ASSOCIATE
PROFESSOR DR. VISALAKSHI VEGESNA (LAW OF CONTRACTS).

I am grateful to my mother for her enormous help in formatting and verifying

the contents of the said project work. I am also thankful to the seniors for ensuring
that project would be well enough to be presented in front of others. I also
acknowledge the contribution of my friends for the editing, proof checking and
general guidance they have provided. This has been invaluable. Finally, I’m indebted
to all my teachers for verifying of the content.

I am also very grateful to the various sources of information, the journals,

magazines and lots of articles which provided me all aspects of information.

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LIST OF ABBREVIATIONS

AIR ALL INDIA REPORTER

SC SUPREME COURT
MP MADHYA PRADESH
PAT PATNA
CAL CALCUTTA
CUT CUTTACK

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TABLE OF CASES

1. Thommen J., in Indra Sawhney v. union of India, AIR 1993 SC 477.

2. Kesavananda Bharati v. State of Kerala, AIR 1973 SC 1461.
3. WADE AND PHILLIPS, CONST. LAW, 623 et. Seq.(1977).
4. Chaturbhuj v. Moreshwar, AIR 1954 SC 236.
5. Mulamchand v. State of Madhya Pradesh, AIR 1968 SC 1218
6. Union of India v. N. K. Pri. Ltd. , AIR 1972 SC 915
7. State of Bihar v. Karan Chand Thapur., AIR 1962 SC 110
8. Union of India v. Chouthmal., AIR 1976 MP 199
9. Bhikraj Jaipuria v. union of India AIR 1962 SC 113`.
10. State of Bihar v. Sonabati., AIR 1954 Pat 513.
11. Prmod Kumar Rath v. State of Orissa, (2005) 99 Cut LT 299.
12. Utpal Mitra v. Chief Executive Officer, AIR 2006 Cal 74.

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TABLE OF CONTENTS
ACKNOWLEDGMENT……………………………………………………………….i

LIST OF ABBREVIATION…………………………………………………………..ii

TABLE OF CASES………………………………………………………………..…iii

CHAPTER: 1 INTRODUCTION………………………………………………...…6-7

CHAPTER : 2 ARTICLE 14 OF THE CONSTITUTION OF INDIA…………....8-10

CHAPTER: 3 GOVERNMENT CONTRACTS……………………………….....11-14

CHAPTER : 4 JUDICIAL ATTITUDE TO ART. 299…………………………..15-21

CHAPTER : 5 CONTRACTUAL LIABILITY ………………………………..……22

CHAPTER : 6 CONCLUSION…………………………………………………...23-24

CHAPTER : 7 BIBLIOGRAPHY……………………………………………………25

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CHAPTER : 1 INTRODUCTION

The United States Government is the single largest procurer of goods and services in
the world, and the Department of Defense (DOD) accounts for the lion’s share of
federal acquisitions. Three major characteristics distinguish Government acquisitions
from private sector contracts. First, Government contracts are subject to myriad
statutes, regulations, and policies which encourage competition to the maximum
extent practicable, ensure proper spending of taxpayer money, and advance
socioeconomic goals. Second, Government contracts contain mandatory clauses
which afford the Government special contractual rights, including the right to
unilaterally change contract terms and conditions or terminate the contract. The most
important clauses are the “Changes” clause, the “Termination for Convenience”
clause, and the “Default” clause. Third, due to the Government’s special status as a
sovereign entity, claims and litigation follow the unique procedures of the Contract
Disputes Act.

Government contracts are subject to several statutes, including the Competition in

Contracting Act and the Federal Acquisition Streamlining Act. In addition to statutes,
there are a multitude of regulations which govern acquisitions by executive branch
agencies. Foremost among these is the Federal Acquisition Regulation (FAR), which
is codified in Parts 1 through 53 of Title 48, Chapter 1 of the Code of Federal
Regulations. Executive branch agencies may issue their own regulatory supplements
to the FAR, such as the Defense Federal Acquisition Regulation
Supplement (DFARS). The FAR is amended pursuant to the Administrative
Procedure Act, with proposed changes issued jointly by the DOD, the General
Services Administration (GSA), and the National Aeronautics and Space
Administration (NASA), in coordination with the FAR Council.

Only Contracting Officers have the authority to contractually bind the United States
Government. This authority is vested in the executive agency, which then delegates
this authority by issuing a certificate of appointment or “warrant.” The warrant
provides signature authority up to a specified amount of money, or it can be an
unlimited warrant. Contracting Officers have the authority to award, administer, and
terminate Government contracts.

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Government contract claims are subject to the Contract Disputes Act, which requires
the claim to be presented first to the Contracting Officer. After the Contracting
Officer’s Final Decision, the claim may be appealed to either the United States Court
of Federal Claims (CFC) or to one of the Boards of Contract Appeals. After either
venue, the claim may be appealed to the United States Court of Appeals for the
Federal Circuit, and finally to the Supreme Court. The General Accountability
Office (GAO) has the authority to hear bid protests, which are challenges to an award,
proposed award, or terms of a solicitation of a federal contract.

In England, the Government was never considered as an ‘honest man.’ It is

fundamental to the rule of law that the Crown, like other public authorities, should
bear its fair share of legal liability and be answerable for wrongs done to its subjects.
The immense expansion of governmental activity from the latter part of the nineteenth
century onwards made it intolerable for the Government, in the name of the Crown, to
enjoyexemption from the ordinary law. English law has always clung to the theory
that the King is subject to law and, accordingly, can commit breach thereof. As far as
700 years ago, Bracton had observed: “The King is not under man, but under God and
under thelaw, because it is the law that makes the King.” Though theoretically there
was no difficulty in holding the King liable for any illegal act, there were practical
problems. Rights depend upon remedies and there was no humanagency to enforce
law against the King. All the courts in the country were his courts andhe could not be
sued in his own courts without his consent. He could be plaintiff butnever be made
defendant. No writ could be issued nor could any order be enforcedagainst him. As
‘the King can do no wrong’.

Whenever the administration was badly conducted, it was not the King who was at
fault but his Ministers, who must have givenhim faulty advice. But after the Crown
Proceedings Act, 1947, the Crown can now be placed in the position of an ordinary
litigant. In India, history has traced different path. The maxim ‘the King can do no
wrong’ has never been accepted in India. The Union and the States are legal persons
and they can be held liable for breach of contract and in tort. They can file suits and
suits can be filed against them.

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CHAPTER : 2 ARTICLE 14 OF CONSTITUTION OF INDIA

The Constitution of India guarantees the Right to Equality through Article 14 to 18.
“Equality is one of the magnificent corner-stones of Indian democracy.”1

The doctrine of equality before law is a necessary corollary of Rule of Law which
pervades the Indian Constitution.

Art. 14 outlaws discrimination in a general way and guarantees equality before law to
all persons. In view of a certain amount of indefiniteness attached to the general
principle of equality enunciated in Article 14, separate provision to cover specific
discriminatory situations have been made by subsequent Articles.

In this series of constitutional provisions, Art. 14 is the most significant. It has been
given a highly activist magnitude in recent years by the courts and thus, it generates a
large number of court cases. Art. 14 is the genus while Art. 15 and 16 are the species.

It may be noted that the right to equality has been declared by the Supreme Court as
the basic feature of Constitution. The Constitution is wedded to the concept of
equality. The Preamble to the Constitution emphasizes upon the principle of equality
as basic to the Constitution. This means that even a constitutional amendment
offending the right of equality will be declared invalid. Neither parliament nor any
State legislature can transgress the principle of equality.2 This principle has been
recently reiterated by the Supreme Court in ‘Badappanavar’ in the following words:

“Equality is the basic feature of the Constitution of India and any treatment of equals
unequally or unequals as equals will be violation of basic structure of the Constitution
of India.”

EQUALITY BEFORE LAW

Equality before the law, also known as equality under the law, equality in the eyes of
the law, or legal equality, is the principle under which all people are subject to the
same laws of justice (due process). Law also raises important and complex issues
concerning equality, fairness, and justice. There is an old saying that 'All are equal

1
Thommen J., in Indra Sawhney v. union of India, AIR 1993 SC 477.
2
Kesavananda Bharati v. State of Kerala, AIR 1973 SC 1461.

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before the law.' The author Anatole France said in 1894, "In its majestic equality, the
law forbids rich and poor alike to sleep under bridges, beg in the streets, and steal
loaves of bread." The belief in equality before the law is called legal egalitarianism.

Article 7 of the Universal Declaration of Human Rights states that "All are equal
before the law and are entitled without any discrimination to equal protection of the
law."

Thus, everyone must be treated equally under the law regardless of

their race, gender, national origin, color, ethnicity, religion, disability, or other
characteristics, without privilege, discrimination, or bias.The general guarantee of
equality is provided by most of the world's national constitutions (read the
provisions here), but the specifics vary widely. For example, while many constitutions
guarantee equality regardless of race (read the provisions here), only a few mention
the right to equality regardless of nationality (read the provisions here).

Equality before the law is one of the basic principles of liberalism.

The right is enshrined in Article 14 of the International Covenant on Civil and

Political Rights:

1. All persons shall be equal before the courts and tribunals. In the determination of
any criminal charge against him, or of his rights and obligations in a suit at law,
everyone shall be entitled to a fair and public hearing by a competent, independent
and impartial tribunal established by law. The press and the public may be excluded
from all or part of a trial for reasons of morals, public order (ordre public) or national
security in a democratic society, or when the interest of the private lives of the parties
so requires, or to the extent strictly necessary in the opinion of the court in special
circumstances where publicity would prejudice the interests of justice; but any
judgement rendered in a criminal case or in a suit at law shall be made public except
where the interest of juvenile persons otherwise requires or the proceedings concern
matrimonial disputes or the guardianship of children.
2. Everyone charged with a criminal offence shall have the right to be presumed
innocent until proved guilty according to law.
3. In the determination of any criminal charge against him, everyone shall be entitled
to the following minimum guarantees, in full equality:
(a) To be informed promptly and in detail in a language which he understands of the

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nature and cause of the charge against him;

(b) To have adequate time and facilities for the preparation of his defence and to
communicate with counsel of his own choosing;
(c) To be tried without undue delay;
(d) To be tried in his presence, and to defend himself in person or through legal
assistance of his own choosing; to be informed, if he does not have legal assistance, of
this right; and to have legal assistance assigned to him, in any case where the interests
of justice so require, and without payment by him in any such case if he does not have
sufficient means to pay for it;
(e) To examine, or have examined, the witnesses against him and to obtain the
attendance and examination of witnesses on his behalf under the same conditions as
witnesses against him;
(f) To have the free assistance of an interpreter if he cannot understand or speak the
language used in court;
(g) Not to be compelled to testify against himself or to confess guilt.
4. In the case of juvenile persons, the procedure shall be such as will take account of
their age and the desirability of promoting their rehabilitation.
5. Everyone convicted of a crime shall have the right to his conviction and sentence
being reviewed by a higher tribunal according to law.
6. When a person has by a final decision been convicted of a criminal offence and
when subsequently his conviction has been reversed or he has been pardoned on the
ground that a new or newly discovered fact shows conclusively that there has been a
miscarriage of justice, the person who has suffered punishment as a result of such
conviction shall be compensated according to law, unless it is proved that the non-
disclosure of the unknown fact in time is wholly or partly attributable to him.
7. No one shall be liable to be tried or punished again for an offence for which he has
already been finally convicted or acquitted in accordance with the law and penal
procedure of each country.

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CHAPTER : 3 GOVERNMENT CONTRACTS

The subject of government contracts has assumed great importance in modern times.
Today state is the 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. More and more of an individual’s
wealth today consists of new forms of property. More and more individuals and
businesses enjoy largess in the form of government contracts, licenses, quotas,
mineral rights, jobs, etc. Most of these forms of wealth are in the form of wealth are in
the nature of ‘privileges’, though some may be regarded as legal rights.3

There is thus need to develop some norms to protect individual interest in such
wealth. The basic question is to regulate structure and discipline government
discretion to confer such benefits.

POSITION IN BRITAIN

At Common Law, before 1947, the Crown could not be sued in a court on a contract.
This privilege was traceable to the days of feudalism when a lord could not be sued in
his own courts. Another maxim which was pressed into service was that the king can
do no wrong.

A subject could, however, seek redress against the Crown through a petition of right
in which he set out his claim, and if the royal flat was granted, the action could then
be tried in the court. The royal fiat was granted as a matter of course, but not as a
matter of right, and there was no remedy if the fiat was refused.

The Crown Proceedings Act, 1947, abolished this procedure and permitted suits being
brought against in the Crown in the ordinary courts to enforce contractual liability, a
few types of contracts being, however, excepted.4

3
Charles A. Reich. The New Property, 73 Yale LJ 733
4
WADE AND PHILLIPS, CONST. LAW, 623 et. Seq.(1977).

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POSITION IN INDIA : ART. 299 OF THE CONSTITUTION

FORMATION OF CONTRACTS

Art. 299(1) of the Constitution lays down three conditions which the contracts made
in the exercise of the executive power of the Centre or a State must fulfill to be valid.
These conditions are:

Such contracts must be expressed to be made by the President/Governor as the case

may be;

Such contracts made in exercise of the executive power are to be executive on behalf
of the President/Governor as the case may be; and

The contracts are to be ‘executed’ by such persons and in such manner as the
President/Governor may direct or authorize.

The word execute in Art. 299(1) indicates that the contract between the government
and any person must be in writing. A mere oral contract is not sufficient for the
purposes of Art. 299(1).5

Generally, the courts have taken the position that Art. 299(1) has not been inserted in
the Constitution for the sake of mere form. Its function is to safeguard the government
from being saddled with liability for unauthorized contracts. The provisions have been
embodied to protect the general public as represented by the government. The term of
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 Art. 299(1)
cannot be enforced at the instance of any of the contracting parties. Neither the
government can be sued and held liable for breach of such a contract, nor can the
government enforce such a contract against the other contacting party.6

The Supreme Court has observed in K. P. Chowdhry v. State of Madhya Pradesh,7

that “in view of Art. 299(1) there can be no implied contract between the Government
and another person.” Art. 299(1) being in ‘mandatory terms’ “no implied contract

5
Jain & Jain, Principle of Administrative Law, Ch. XXII(1986).
6
Chaturbhuj v. Moreshwar, AIR 1954 SC 236.
7
AIR 1967 SC 203

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could be spelled out between the Government and the appellant” as “Art. 299 in effect
rules out all implied contracts between the Government and another person.”8 The
court also rules out that “if the contract between the Government and another person
is not in full compliance with Art. 299(1), it would be no contract at all and could not
be enforced either by the Government or other person as a contract.”9

In K. P. Chowdhry v. State of Madhya Pradesh,10 a person before bidding at an

auction signed a sale notice agreeing to abide by the terms of the auction. One of the
terms was that if the bidder failed to complete the formalities after acceptance of his
bid, his earnest money would be forfeited, the contract reauctioned at his risk and any
deficiency occurring was to be recoverable from him as arrears of land revenue. The
question arouse whether signing of the notice by the bidder created any contract
between the government and the bidder. It was not in full compliance of Art. 299. The
Supreme Court held that there was no contract between the bidder and the
government. The Court also ruled out any implied contracts between government and
another 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 Art. 299 a
dead letter, for then a person who had a contract with the government which was not
executed at all in the manner provided in Art. 299(1) could get away by pleading that
an implied contract be inferred from the facts and circumstances of the case.

A contract to be valid under Art. 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 the conditions of Art. 299(1)
are fulfilled.

In Union of India v. Rallia Ram,11 the Chief Director of Purchases, Government of

India, invalid tenders for purchase of some cigarettes. The respondent’s tender was

8
Ibid., at 207.
9
Mulamchand v. State of Madhya Pradesh, AIR 1968 SC 1218
10
AIR 1967 SC 203
11
AIR 1963 SC 1685

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accepted and the acceptance letter was signed by the Director and it contained an
arbitration clause. The Supreme Court held that the constitutional provision (Art.
299(1)) did not in terms stipulate that only a formal document executed on behalf of
the Government of India with the other contracting party was effective. In the absence
of any direction by the President prescribing the manner in which a contract is to be
executed, a valid contract may result from correspondence between the parties
concerned. A tender for purchase of goods in pursuance of an invitation issued by and
acceptance in writing which is expressed to be made in the name of, the President and
executed on his behalf by a person authorized for the purpose would conform to the
requirements of Art. 299(1). In the instant case, the correspondence between the
parties ultimately resulting in the acceptance note was held to amount to be a contract.
This means that a binding contract by tender and acceptance can come into existence
if the acceptance is by a person duly authorized in this behalf by the President.12

Under Art. 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 be 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 Art. 299(1) does not prescribe any
particular mode in which authority must be conferred; authorization may be conferred
ad hoc on any person.13 A contract entered into by an officer not authorized to enter
the same is not valid or binding.14

Lastly, under Art. 299(1), a contract between the government and a private party to be
enforceable has to be expressed in the name of the President/Governor. Even though a
contract is made by a person authorized by the President/Governor to make it, it will
still not be enforceable against the government if it is not expressed to be made on
behalf of the President/Governor.15

12
Union of India v. N. K. Pri. Ltd. , AIR 1972 SC 915
13
State of Bihar v. Karan Chand Thapur., AIR 1962 SC 110
14
Union of India v. Chouthmal., AIR 1976 MP 199

15
Bhikraj Jaipuria v. union of India AIR 1962 SC 113`.

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CHAPTER : 4 THE JUDICIAL ATTITUDE TO ARTICLE 299

On the one hand, to protect the Government from unauthorized contracts; and
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 same time, 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.

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.

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PRINCIPLES OF UNDERLYING GOVERNMENT CONTRACTS

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. 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.
ll 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 and
conditions of the contract itself.

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

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would be applicable even in the matter of exercise of executive power without making
law. It is settled principle of law that the court would strike down an administrative
action which violates any foregoing conditions.
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.

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.

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. Therefore, even when an

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award of contract may not be causing any loss to the public exchequer manifestly, it
may still be liable to quashment for being unfair, unreasonable, discriminatory and
violative of the guarantee contained in Article 14.

Equality, non-arbitrariness: 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.

Section 70 lays down three conditions namely:

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

him;
2. in doing so, he must not intend to act gratuitously; and
3. the other person for whom something is done or to whom something is delivered
must enjoy the benefit thereof.

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

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Section 70.

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 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.
Judicial Review in 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

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Constitution of India.

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 favoritism.
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 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.
It is not for the Court to determine whether a particular policy particular decision
taken in the fulfillment of that policy is fair. It is only concerned with the manner
in which the decisions have been taken. 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:
Illegality: This means the decision-maker must understand correctly the law that
regulates his decision-making power and must give effect to it.
Irrationality
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

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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."

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
contracts held to be against the mandate Art. 14 of the Constitution of India, the
Court cannot ignore such action saying that the authorities concerned should
have 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
decision. The Doctrine that the powers must be exercised reasonably has to be
reconciled with the no less importance doctrine 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
vires. 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 merits.

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CHAPTER :5 CONTRACTUAL LIABILITY

Art. 299(2) immunizes the President/ Governor, or the person executing any contract
on his behalf, from any personal liability in respect of any contract executed for the
purpose of the Constitution, or for purposes of any enactment relating to the
government of India heretofore 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 requirement of
Art. 299(1).16

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.

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.

16
State of Bihar v. Sonabati., AIR 1954 Pat 513.

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CHAPTER : 6 CONCLUSION

The judgment of Supreme Court in Mahabir Auto Stores v. Indian Oil Corpn.17 is of
extreme relevancy. SABYASACHI MUKHERJI CJ observed as follows:

“The State acts in its executive power under Art. 298 of the Constitution of
India in entering or not entering in contracts with individual parties. Article 14 of the
Constitution would be applicable to such exercise of power. The action of State organ
can be tested under Art. 14. Every action of the state executive authority must be
subject to the rule of law and must be informed of reason. So, whatever be the activity
of the public authority, it should be meet the test of the Art. 14 of the Constitution. If
a government action even in the manners of entering or not entering into contract fails
to satisfy the text of reasonableness, the same would be unreasonable. Rule of reason
and rule against arbitrariness and discrimination, rules of fair play and natural justice
are part of the rule of law applicable with citizens.
Even though the rights of the citizens are in the nature of contractual rights,
the manner, the method and motive of a decision of entering or not entering into a
contract, are subject to judicial review on the touchstone of relevance and
reasonableness, fair play, natural justice, equality and non-discrimination in the type
of the transactions and nature of the dealing as in the present case. The existence of
the power of judicial review however depends upon the nature and right involved in
the facts and circumstances of the particular case. It is well settled that there can be
"malice in law". Existence of such "malice in law" is part of the critical apparatus of a
particular action in administrative law. Indeed "malice in law" is part the dimension of
the rule of relevance and reason as well as the rule of fair play in action.”

The court could not sit in appeal against the decision of the Tender Committee which
consisted of experts to substitute it’s own decision. Scope of interference by the Court
is very limited and only when the Court is satisfied that the decision making process
of the Tender Committee was actuated by mala fides, the court might interference in
the same.18

17
(1990) 3 SCC 752.
18
Prmod Kumar Rath v. State of Orissa, (2005) 99 Cut LT 299.

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Preventing from tendering

A bidder was prevented by some elements inside the office from submitting his
tender. An inquiry conducted by the authorities verified the allegations. The person so
ruled out was permitted to submit his tender after two intervening holidays. His terder
was accepted. No prejudice was caused to other tenderers. The work order issued to
him was not interfered with.19

19
Utpal Mitra v. Chief Executive Officer, AIR 2006 Cal 74.

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CHAPTER : 7 BIBLIOGRAPHY

o Moitra's Law of Contract & Specific Relief; 5th ED; Page 4

o M.P.Jain; Indian Constitutional Law;5th Ed;Page1801
o T.K Mukherjee;Law of Contract;Vol-1;Ed 2000;Page37
o Pollock &Mulla; Indian Contract & Specific Relief Acts;12th Ed;
Page 312

o CLAIMING HUMAN RIGHTS. 09 01 2009. 16 03 2016

<http://www.claiminghumanrights.org/equality_before_law_definit
ion.html>.

o GOVERNMENT CONTRACTS. n.d. 10 3 2016

<https://www.law.cornell.edu/wex/government_contracts>.

o LEGAL SERVICES INDIA-GOVERNMENT CONTRACT. n.d.

15 3 2016 <http://www.legalserviceindia.com/article/l42-
Government-Contracts.html>.

o SINGH, AVTAR. CONTRACT AND SPECIFIC RELIEF.

LUCKNOW: EASTERN BOOK COMPANY, 2013.

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