GOVERNMENT AS THE CONTRACTING PARTY

LAW OF CONTRACT RESEARCH PAPER FOR THE INTERNAL CONTINUOUS ASSESSMENT

SEMESTER 2

Submitted by: Vidhisha Agrawal

Course: B.A.L.L.B (hons.) 2021-26
SAP ID: 81012100265
ROLL NO: B 223
Submitted to: Professor Megha Ojha

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 DECLARATION

I make a statement that the research work is originally done by me and the content in it is not given
anywhere. The references of used content is mentioned and given appreciation. I state that research
paper is made by me and the work done is my own except where it is mentioned in the text itself, and
the work done in this paper is not been submitted by any other degree holder or any university.

Vidhisha Agrawal

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 ACKNOWLEDGEMENT

I am sincerely thankful to my college, SVKM NMIMS SCHOOL OF LAW to provide me with

the opportunity to write a research paper for Law of contracts.
I am also thankful to Prof. Megha Ojha for guiding me in every stage of this research paper.
Without her support, it would have been really difficult for me to prepare the research paper so
meaningful and interesting.
I would also express my gratitude to the librarian of SVKM NMIMS SCHOOL OF LAW, NAVI
MUMBAI, and my seniors who have helped me during the course of this research paper in
different ways.
Through this research paper, I have gained a lot of information about the principle of absolute
liability and its importance in our country. I hope that this research paper provides a better
understanding of the rule and also clears out the contrast between strict and absolute liability.
THANK YOU

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 TABLE OF CONTENTS

Sr. No. Particulars Page No.

1. Abstract 5

2. Introduction 6

3. Research question 6

4. Literature objective 6

5. Research objective 6

6. Research methodology 6

7. Analysis 7

8. Conclusion 11

9. References 12

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ABSTRACT

The contract has become a vital aspect of carrying out various commercial activities since
contracts set up the rights and responsibilities of each of the parties involved in a transaction, as
well as the procedures to be followed in the event of a violation of the contract, the courts can
give a remedy. Because the government also runs public firms and performs numerous functions,
A variety of contracts are awarded by the government of India on multiple levels, including the
national and state levels. Despite the fact that the Indian Contract Act of 1872 governs the terms
of a normal contract, a Government Contract is governed by the Indian Constitution, which
includes extra requirements. As a result, the formation of a Government Contract differs from
that of an ordinary contract. In this paper, I am going to discuss the cases and legislation related
to government contracts.

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INTRODUCTION

A Government contract, as the name implies, is one in which the government is one of the
parties. A Government contract may include the State as well as the Central Government. All
government contracts are signed in the name of India's President. Government contracts have
become more important as the government's economic operations have grown. Section 2(h) of
the Indian Contract Act, 1827i, contains a definition of contract in general. However, when it
comes to government contracts, none of the sections of the Contract Act directly address them.

A government contract can be defined as a contract in which either the national or a state
government is one of the parties to the agreement. The conditions for this contract are the same
as those for any standard contract, with the addition of the stipulation that it must comply with
Article 299(1) of the Indian Constitution. It was reaffirmed in the case of State of Bihar v.
Majeed, in which the Honorable Supreme Court decided that the provisions of the Indian
Contract Act also govern government contracts in terms of offer, acceptance, and consideration.
This was the case in which the Supreme Court made its decision. Nevertheless, such contracts
are required to comply with Article 299. (1). And in accordance with the provisions of Article
299 (1), the Central or State Government is held to the same standard of contractual liability as
any individual under the general principles of contract law.

RESEARCH QUESTION

1. Analyse the legislation governing contracts in which government is a party and the cases.

2. Evaluate the legislation in India and other countries and determine the shortcomings if any.

RESEARCH OBJECTIVE

1. Evaluate the legislation in various countries with regard to government contracts.

2. To understand the essentials of a valid contract when the government is a party.

RESEARCH METHODOLOGY

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The research methodology adopted is doctrinal research on government contracts using primary
and secondary sources.

Legislations in India and a few other countries under study were used as the main sources.
Books, research papers, acknowledged reports, and journal articles on the chosen topic are
examples of secondary sources.

WHAT IS A CONTRACT?

A contract is an agreement that is made between at least two people in which both parties agree
to perform or refrain from performing an act in exchange for monetary payment. This agreement
is known as a legal document. According to Section 2(h) of the Indian Contract Act, an
agreement that is legally binding is considered to be a contract. As a consequence of this, a deal
is considered a contract if it does not go against the law in any way.

A contract that involves the government as one of the parties is referred to as a "Government
contract," as the term suggests. It's possible for both the state and the federal governments to be
parties to a government contract. Every single government contract in India bears the signature
of the country's President.

One of the parties to a government contract either the Central or State Government, and in
addition to the criteria of the Indian Contract Act of 1872, the conditions of Article 299 of the
Indian Constitution must also be met; otherwise, the contract will be regarded as invalid and
unenforceable. Judicial review is a potent instrument for restraining arbitrary government
contracts; yet, it cannot be employed at this time since it would contradict the Executive Branch's
contractual powers if it were to be used. Therefore, whenever a contract is arbitrary or violates
the correct procedure, the authority of judicial review can be used to challenge the validity of the
contract.

ANALYSIS

POSITION IN ENGLAND

A person was not permitted to file a contract claim against the Crown in England due to the
practise of adhering to the norm that stated "the King can do no wrong." A person has the ability

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to file a petition of right, and if the petition is successful, a royal fiat is given, which gives the
individual the power to sue the Crown. On the other hand, given that this fiat did not constitute a
right, it was usually denied, leaving the individual with little options for pursuing his claim.

The Crown Proceedings Act was passed in 1947, and as a result, the bar on a person's right to sue
the Crown was removed. As a result, the Crown can now be sued in a regular court for the
purpose of contract enforcement; however, this is subject to a number of exceptions that are
stipulated in individual contracts.

POSITION IN AMERICA

The notion of state immunity as a sovereign power was imported from England to the United
States. 9 This prompted Congress to pass the Federal Tort Claims Act of 1946, which repealed,
in major part, the federal government's immunity from tortious action, subject to certain
limitations. In cases such as Hathley v. U. Section10, Rayonier v. U. Section11, and India
Towing Co. v. U. Section12ii, the applicability of this Act has been further liberalised by the
courts.

POSITION IN INDIA

It is possible to enter into a contract in India through either an express or In the event of
government contracts, however, the Constitution's Article 299 criteria must be followed, as well
as the formalities for forming such contracts.

The Supreme Court of India provided its opinion in the matter of K.P. Chowdhary v. State of
Madhya Pradesh. Their opinion that in order for a government contract to be valid, Article 299
stipulates that there must be a written express agreement between the parties. In the event that a
person enters into an implied contract with the government, neither the individual nor the
government will be able to bring legal action in order to enforce the terms of the contract.

Many people have argued that having a formal agreement is not always practical and that Since
there are many instances in which government personnel also enter into tiny contracts, it is not
ideal to produce a formal agreement every time, even for such contracts. However, it is possible

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to create such an agreement. On the other hand, the Supreme Court has decided in a number of
cases that there must be a formal express contract in place. Despite this, the Supreme Court of
the United States has decided in a number of cases that there must be a formal express contract.
Therefore, the necessity of the formal express contract has been removed, and if the contract is
written and the substantial conditions of Article 299 Clause 1 are satisfied, then the contract will
be lawful even if all of the requirements of this section are not satisfied.

It has become an important part of the government's trade and commerce activities to contract
out the development of infrastructure to private companies that work directly under the
supervision of the necessary government agencies or state instrumentalities. The government has
been delegating this responsibility, and the practise of doing so has become widespread. The
ability of the government to enter into contractual relationships is recognised by the Constitution
in Article 299, which states.
(1) The President or the Governor of the State, whichever is applicable, shall be credited with
having entered into any and all contracts that are entered into in the course of the exercise of
executive power on the part of either the Union or a State. Furthermore, any and all property
assurances and contracts of this nature shall be executed on behalf of the President or the
Governor by such individuals and in such a manner as he may direct or authorise.
(2) Neither the President nor the Governor is personally responsible for any agreements,
guarantees, or contracts that are made or carried out by the government, under this Constitution
or any previously enacted law related to the Government of India. No one acting on their behalf
may enter into such a contract or guarantee.

Articles 298 and 299 come into play when tracing legal provisions connected to government
contracts. Article 298 relates to the Union's and States' executive powers to conduct commerce
and business, and it is reproduced here.

Article 298 grants the power to carry on trade and other activities. The executive powers of both
the Union and each state should include the ability to engage in any kind of commercial or
industrial activity, as well as the purchase, possession, and sale of property, and the formation of
contracts for any reason:

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The execution must be carried out by anyone and in whatever manner the President or Governor
of the case directs or authorizes.

"Executed" does not necessarily imply a formal contract. Article 299 requires a bid for the
purpose of making a purchase of commodities in accordance with a notice, notification, or
statement inviting tenders that was issued by or on behalf of the President or Governor, as
applicable, and an acceptance in writing made in the President's or Governor's name and
executed on his behalf by a person authorised in that capacity (1).
"In order to bind a government, there should be a specific method permitting the Government's
agents to make contracts," the court held in the case of Chatturbhuj v. Moreshawar. Contracts
formed by unidentified public workers cannot jeopardize public funds unless the law expressly
permits it."  As a result, Article 299 is founded on the idea of the protection of the general public.

Contract Must Be Written:

Contract Must be in writing Where a written contract is required, the phrase "executed" is used in
Article 299 (1). Thus, for the purposes of Article 299, an oral contract is not a contract at all (1).
At this point, the question that needs to be answered is whether or not the contract ought to be
written on an official document or whether or not straightforward correspondence in the form of
an Offer and acceptance letters work. In Union of India vs. A. L. Rallia Ram, the Supreme Court
of India found that a contract between the government of India and the Respondent was
legitimate.

Executed by Authorised Person:

A person who has been granted permission to act in that capacity by either the President or the
Governor, depending on the circumstances, is required to engage into a contract on behalf of the
government according to article 299 (1). A contract signed by someone who isn't authorized to
do so isn't a contract at all and hence is null and void. Contracts entered and executed by the

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approved authority are the only ones that can bind the government. Article 299 (1) does not
specify a method for conferring power on a person to carry out a government contract.

No Personal Liability:

According to Article 299, both the President and the Governor are exempt from any personal
culpability (2). "Neither the President nor the Governor, nor anybody forming or executing a
contract or assurance on their behalf, shall be personally liable for any contract or assurance
made or executed for the purposes of this Constitution or any statute relating to the Government
of India that has been in force up until this point in time," the Constitution states. "This provision
shall apply to anyone forming or executing a contract or assurance on their behalf."

Contract law is primarily an issue of private law, although in recent years, the law governing
government contracts has become separate from that of private contracts. In this area, there is a
requirement to guard not only the general public's best interests but also the rights of individuals
against the misuse of administrative authority. It is self-evident that the government or any of its
agencies should not be authorised to act arbitrarily and bestow rewards on anybody they want,
and it is also self-evident that this should not be allowed to happen. As a consequence of this,
certain criteria need to be set in order to regulate and protect individual interests.

The common types of contracts are frequently utilised, individuals have no choice but to accept a
"Contract" whose terms and conditions are enforced by a monopolistic state power. with the
individuals having very little voice in the issue. In these types of contracts, individuals have little
choice but to sign on the dotted line. The Indian Constitution's Article 299 establishes the rules
that govern the legitimacy of all government contracts.In India, we can argue that the legislation
governing government contracts is still in its infancy. While in French law, a whole branch of
law known as contract administrators has emerged to address the unique characteristics of
government contracts. The legislation governing government contracts in the United States is

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likewise fairly complex. To safeguard the public and individual interests, as well as to assure
impartiality, justice, and non-arbitrariness in government contracts, a new law must be passed
that establishes norms and regulations to protect the public and personal interests in government
contracts.

CONCLUSION

It is essential to find a middle ground in this matter: the first priority should be to shield the
government from any illegal contracts; the second priority should be to shield the interests of
naive and innocent individuals who enter into contracts with government employees without first
following all of the procedures outlined in the Constitution. Rigorous adherence to these
standards has been noted to be inequitable to private parties while also making government
activities highly complex and cumbersome in practice. As a result, in some situations, the courts
have softened the rigors of Article 299(1)'s formalities, allowing contracts to be enforced even
when the criteria of Article 299(1) have not been fully met.

REFERENCES

Legislative.gov.in. 2022. [online] Available at: <https://legislative.gov.in/sites/default/files/A1872-

09.pdf> [Accessed 30 May 2022].

Legislative.gov.in. 2022. [online] Available at: <https://legislative.gov.in/sites/default/files/A1872-

09.pdf> [Accessed 30 May 2022].

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“Crown Proceedings Act 1947.” Crown Proceedings Act 1947, www.legislation.gov.uk,
https://www.legislation.gov.uk/ukpga/Geo6/10-11/44/contents. Accessed 30 May 2022.

Main.sci.gov.in. 2022. [online] Available at: <https://main.sci.gov.in/jonew/judis/3528.pdf> [Accessed

30 May 2022].

https://www.casemine.com. 2022. towing | India Judgments | Law. [online] Available at:

<https://www.casemine.com/search/in?q=towing> [Accessed 30 May 2022].

ENDNOTES

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i
https://legislative.gov.in/sites/default/files/A1872-09.pdf

ii
https://www.casemine.com/search/in?q=towing