You are on page 1of 27



Class LL.M. Ist Semester




Time Available 20 Min.

What, How & Why......
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. This raises the possibility
of exercise of power by a government to dispense largess in an arbitrary manner.
However to bind the government in contractual liability the three requisites of
article 299 must be there. This provision was inserted to safeguard the government
from unauthorised contracts but with the evolution of the welfare state and extent
of its functions, is it the government that requires this protection or the individuals
that enter into contracts with it. And also whether there should be substantive
public law to make the government liable?
Aims & Objectives :
To provide comprehensive understanding of;
• Government contract and difference between private contract and government
• Essentials requirement to enter in contract with government.
• Various kinds of liability depending upon the nature of dealing with the
• Law relating to contractual liability in other countries.
• Judicial interpretation of contractual liability and extent of judicial intervention
in government contract.
Learning Outcomes :

At the end of the class students will be able to;

• Knowing the basic understanding about government contract applicable in

• Identify that the contracts are made following the prescribed procedure.

• Conclude technically sound contracts in a manner free from procedural

and legal lacunae.
• Know judicial approach towards government contract
Liability Of The Government

Tortious Liability Statutory liability Contractual Liability

Difference B/w Government Contract
And Private Contract
Government Contract Private Contract

1. It has to fulfil requirement of Article 299 1. It can be written/oral, expressed/implied

of the constitution. etc.

2. There may arise problems of public law as 2. There is nothing like that
Fundamental right, writ jurisdiction, Natural

3. Longer limitation period is provided to 3. No such privilege is provided in case of

government u/a 112 to file a case. despites between private parties.

4. It may involve not only supplies or 4. It may just to provide supplies and services
services but also livelihood , be instrument of
implementation of Government policies.

5. As govt. contract involves public interest 5. It is not relevant to private contract.

and public finance is affected it is subject to
certain limitations- constitutional, legal and

1. Written Contract
2. Execution by authorised person
3. Expression in the name of president( Governor)
Judicial Interpretation w.r.t Contractual Liability of Government

• K.P . Chowdhary v state of Madhya Pradesh AIR 1967 SC 203

• State of west Bengal v B. K Mondal & Sons AIR 1962 SC 779
• State of Punjab v Omprakhash Baldeo Krishan AIR 1988 SC 2149
• Art.299 of the constitution and Sec. 65 of the Contract Act 1872
• Art.299 of the constitution and Sec. 70 of the Contract Act 1872
• Union of India v Hindustan development Corp. AIR 1994 SC 980
• In sterling computers Ltd. V M & N Publication Ltd. AIR 1996 SC 51
• In U.P. Rajkiya Nirman Nigam Ltd. V indure Pvt. Ltd. AIR 1996 SC 1373
K.P . Chowdhary v state of Madhya Pradesh AIR 1967

In view of Art.299(1) there can be no implied contract between the

government and another person , the reason being that if such implied contract b/w the
govt. and another person were allowed , they would in effect make Art. 299(1) useless,
for then a person who had a contract with govt .which was not executed at all in the
manner provided in art.299(1) could get away by saying that an implied contract may
be inferred on the facts and circumstances of a particular case…..

The second consequence which follows from these decisions is that if the contact b/w
Govt and another person is not in full compliance with all and could not be enforced
either by the govt. or by the other person as a contract.
But if however, there is valid contract as envisaged by art .299(1), the court may imply a
term which the parties had failed to incorporate in order to give full effect to the
intension of the parties.
In Mahabir auto store v Indian oil corporation AIR 1990

The basic principal relating to power of the state to entre into or not
to entre contract with individuals has been clearly laid down .
“ it is well settled that every action of the state or an instrumentality in exercise of
executive power, must be informed by reason.

Where a state or an instrumentality of state constituted under Art. 12 of the

constituted , an action of its executive authority to enter or not to enter into
contracts is subject Art. 14 of the constitution .
Where be the activity of public authority in monopoly or semi monopoly dealings,
it should meet the test of Art. 14 of the constitution .
State of west Bengal v B. K Mondal & Sons AIR 1962

Supreme court held that the object of Art. 299 of the constitution
of India is to protect the state not to saddle with liability for unauthorised
State of Punjab v Omprakhash Baldeo Krishan AIR 1988

Accordingly in this case SC held that if a letter of acceptance is

signed by the executive engineer for construction of a bridge and not in the name
of the governor, it can not be said there is a valid contract in conformity with Art.
299 (1) of the constitution of India.
Art.299 of the constitution and Sec. 65 of the Contract Act 1872
Where a contract is not end forcement for non compliance with the
requirement of Art.299 of the constitution , parties to such contract are to restore the
benefits under the agreement according to the provisions of sec. 65 of the Contract
Act 1872
(Hindustan Construction Co. v State of Bihar AIR 1963 )
Art.299 Of The Constitution And Sec. 70 Of The Contract Act 1872

When an agreement becomes invalid for non compliance with art .299 of
the constitution , person enjoying benefit must restore under sec .70 of the contract.
(state of W.B v B.K. Mondal &Sons AIR 1962 )
Other Provisions Of The Indian Contract Act 1872

Govt . Contract subject to the provisions of Art. 299 of the

constitution of India and other rules and notifications of the govt. teaching any
such contract ,will ordinarily be governed by the provisions of the Indian
contract Act 1872.
So the provisions relating to performance of the reciprocal promises ,contract
which need not be performed ,consequence of breach of contract, indemnity,
guarantee, agency will apply with full force.
Union of India v Hindustan development Corp. AIR 1994 SC 980
•Where in response to an offer for inviting offers for entering into contract with
the govt. both big and small manufacturers had offered tenders.

•The tender committee of the railway board fixed on rate for big manufacturers
and another foe smaller manufacturers

•Such as action under the circumstances was held reasonable and bona fide and it
is not hit by Art . 14 of the constitution .
In Sterling Computers Ltd. V M & N Publication Ltd. AIR 1996 SC 51
SC held that
•In exercising the power of judicial review in govt. contracts, the court is to
consider primarily as to whether there has been any infirmity in the “decision
making process”

•By way of judicial review the court can not examine the details of the terms of the
contract which have been entered into by the public bodies or the state .
The court has the inherent limitations on the scope of any enquiry

•But at the same time the court can certainly examine whether “decision making
process ” was reasonable ,rational , not arbitrary and violation of Art.14 of the
In U.P. Rajkiya Nirman Nigam Ltd. V indure Pvt. Ltd. AIR 1996
SC held that:
The doctrine of indoor management can not be extended to formation
of contract or essential terms of contract unless the contract with the other
parties is duly approved and signed on behalf of a public undertaking or the govt
. With its seal by authorised or competent officer. Otherwise, it would be
hazardous for public undertaking. Or its instrumentalities to deal on contractual
relations with third parties.


.Before 1947- immunity . Till 1978 there was ‘dispute; . Before constitution-
based on two doctrines- clause . Charter Act 1833- East India
1. The King by his writ can . Contract Disputes Act 1978 company
not command itself . Sec. 65 of GOI Act 1858-
2. The King can do no secretary of state
wrong. .Post Independence- Liability
same as of an individual u/ ICA
.Crown Proceedings Act,1947. 1872, only requisites of Art. 299
has to be fulfil




CLASS PLAN….. Content Time
• What, How & Why

• Aims & Objectives

• Learning Outcomes

• Liability Of The Government

• Contract & Agreement

• Promise & Government Contract

• Difference B/w Government Contract And Private Contract

• Essential Requirement To Form Government Contact u/a 299

• Judicial Interpretation w.r.t Contractual Liability of Government

• Law in Other Countries