2.

CONTRACTUAL LIABILITY OF THE STATE

(ARTICLE 299)
Article 299 of the Indian Constitution lays down the provisions
relating Contracts entered into by the Union or State Government
with other party/parties, who may be an individual/two or more
individuals or a firm or company, who can legally enter into a valid
contract as per Section 10 of the Indian Contract Act, 1872.
Article 299 runs as follows-
(1) All contracts made in the exercise of the executive power
of the Union or of 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 persons and in such manner as he may
direct or authorize.
2) Neither the President nor the Governor shall be personally
any contract or assurance
made or executed
r e s p e c t of
e purposes of this Constitution, or for the purposes of any
heretofore in force,
Lnent relating to the Government of India contract or
nor such
shall any person making or executing any
in respect
assurance on of them be personally liable
behalf of any
thereof.
 on Constitutional Law-1I
142
Lectures
Lec.6
is derived from the Lain ain term
The word 'Contract
means "drawn together. Itis a
an agreement
n

Contractum", which
entered into between two or more parties subject to certaintems

and conditions.
In a contract, there are Bach no.
parties. Each
two party has
to fulfill his/her obligation. Otherwise, it amounts to breachof

contract causing
loss or damage to the other party, who can ue

for enforcement of ble :in

the contract. A contract to be enforceahla

a Court of Law,
it must be a valid contract. According to Sectio
10 of theIndian Contract Act, a contract iS said to be
valid, when
two or more competent persons (Sec.I1) freely consented (Sec 1a
to enter into an agreement not declared void (Sec.25) or opposed
to public policy (Secs.26 to 30) for a lawful consideration
(Sec.2(d). In other words, a contract, which satisfies the elements
of a valid contract namely, capacity or competence of parties, free
consent lawful consideration etc. is said to be a valid contract and
is enforceable. How the individuals enter into contracts, the State
(Union or State Government) can enter into contracts with other
individuals/agencies/bodies/ authorities through its servants.
A modern welfare State is shouldered with the responsibility
of implementing various schemes for the welfare of its citizens. In this
connection, the State/Govemment enters into variety of contracts with
the individuals and other agencies. In such situations, state as a parnty
to the contract, is subject to the same contractual
obligations, ngnts
and liabilities. However, the State in implementation of the welfare
measures, deserves certain privileges and immunities.
Government Contract: A contract entered into with/by ne
Govemment/State must fulfill the essentials of a valid contract undc
Section 10 of the Indian Contract
Act, 1872, and also
conditions/provisions enshrined under Article 299 1) of the India
Constitution. Therefore, a Government d the
contract to be
va
following conditions are to be satisfied:
.Essentials of a valid contract under Section 10 of the dian
Contract Act, 1872; and
 State Liability
143
L e c . 6

orovisions under Article 299() of the Indian Constitution.

T h ep r o v i s i o n

2
Article 298 ofthe Indian Constitution empowers the Union
on any tra or business
India
and States to carry by entering
of its executive power.
to
n t o
contracts through
Historical Background: In England- In England, the
Crown tate/Government)
eaum (Stat
enjoyed immunity (exemption) from
known maxim The king can do
the ground f a well
ability on
hiabi

wrong'. However,
such immunity was never enjoyed by the
no

Crown in respect of Contractual Liability.

United Company, (1831)-The
In Bank of Bengal v. The
was held liable for the
Government (East India Company)
contractual liability.
not liable for contractual
But the Government/State was held
the ground of Sovereign Power in Nobin Chunder v.
liability on
the Crown Proceedings
Secretary of State (1875)- In England,
Act, 1947, abolished sovereignimmunity and held the Govemment
individual. In India, according
liable like an employer or an ordinary
the Government
to Section 79 of the Civil Procedure Code, 1883,
is liable in contract like a private individual.
Constitutional Provisions: Article
298 of the Constitution
of India and the States) to cary
empowers the Government (Union its
into contracts through
on any trade or business by entering

executive power.
procedure for entering into
Article 299(1) lays down the
Accordingly, the contract with/
Government.
COntracts by/with the conditions are to be
y the Government to be valid, the
following
satisfied: President
to be made by the
h e contract must be expressed
be.
or the Governor as the case may
authorised by
2 be executed by the person
uch contract must as the case may
De.
Uhe President or Governor
i .
 State Liability
L e c . 6 1
145
sed or implied. A contract underan implied authority is valid
as in the case of
enforceable
and
Bhikraj Jaipuria v. Union of India (AIR 1962 SC 113)-
Bh

for supply of large quantity of food grains was

contract entered
AA
CObetween the plaintiff
and the defendant Government's
servant,
theDivisio Superintendent, Eastern Railways. But there was no
ress authority to the Divisional Superintendent to enter into such
conthract. The plaintiff supplied the food grains and the same was
distributed to tthe employees, and a part of the amount also was
Daid. In an action for payment of the balance, the defendant
paic
Government was held liable, on the ground that the Divisional
Superintendent had an implied authoritytoenter into the contract.
3. On behalf of the President or the Governor: The
Government contract to be valid, it must have been entered into
by the person so authorized on behalf of the President or Governor
as the case may be and it must be made in the name of the President
or Governor as the case may be. Otherwise, it is not valid.
Karamshiv. Bombay (AIR 1964 SC 1714)- In this case,
an agreement for supply of canal water for irrigation purposes was
entered into between the plaintiff and the P.W.D. Minister, through
Some letters. But, there was no formal agreement to that effect i.e.,
in the name of the Governor. The Supreme Court held the contract
VOid, and not enforceable.
Ihis view was followed in D.G.Factory v. State of
kajasthan (AIR 1971 SC 141) and Punjab v. O.PB. Krisknan
(AIR 1988 SC 2149).
For the
Article 299(1): Mandatory and no Ratification:
with/by the
dity and enforceability of a contract entered intoConstitution
of the
nent, the provisions of Article 299(1) contract,
are
to be strictly complied with and are mandatory. Any
the
violating these provisions
these pra is defective, and cannot be ratified by
of Madhya
Government
Pro nt (as laid down in Mulchand
v. State

Fradesh).
146 Lectures on Constitutional Law-11
Lec.6
In Mulchand v. State of Madhya Pradesh (AIR 1968 So
1218-it has been observed that for the validity and enforceability
of a contract entered into with/by the Government, the provisions
of Article 299(1) of the Constitution are to be strictly complied with
and are mandatory. Any contract, violating these provisions is
defective, and cannot be ratified by the Government.
Article 299(1) and Section 65 of the Contract Act: If the
agreement with the Government is void as the requirements of
Article 299(1) have not been complied, the party receiving the
advantage under such agreement is bound to restore it or to make
compensation for it to the person from whom he has received it
In State of Orissa v. Rajballabh Mitra (AIR 1976 Orissa 19)-
it has been held that if a contractor enters into agreement with the
Government for the construction of a godown and received payment
therefor and the agreement is found to be void as the requirements
of Article 299(1) have not been complied with, the Government
can recover the amount advanced to the contractor under Section
65 of the Contract Act, 1872 which provides that when an
has received
agreement is discovered to be void, any person who
bound to restore
any advantage under such agreement or contract is
he
it to make compensation for it to the person from whom
received it.
No personal liability to the Governor/President
and
(Article 299(2)): Article 299(2) protects.she President
Governor from personal liability arising out of such contracts.