Contractual Liability

Dr. Anu Prasannan

 Prior to the commencement of the
Constitution
• Before commencement of the Constitution also liability
of the govt. for breach of contract was recognised
• In 1785, Moodalay v Morton the SC of Calcutta held
that East India Co. was subject to the jurisdiction of
municipal courts
• They are held liable in all matters and proceedings
undertaken by them as a private trading Co.
• In no. of statutes like Government of India Acts of
1833, 1858, 1915 and 1935 also such liability of govt.
had been recognised
 Constitutional provisions
• Arts. 294, 298, 299 and 300 complete the
constitutional code of contractual liability of the
government
• Read the provisions
• Art. 299 contains essential formalities which a
govt. contract must fulfill
• A govt. contract in order to be valid besides
complying with Art. 299 must also fulfill the
requirements u/Sec. 10 of the Indian Contract Act
Qn whether A. 299(1) is mandatory
• Courts are of the view that A. 299(1) is
embodied in the Constitution for the protection
of the general public.
• Its function is to safeguard the govt from being
saddled with liability for unauthorised contracts.
• Accordingly courts have held that the term of A.
299(1) are mandatory and not directory
• Thus a contract not meeting the conditions
stipulated becomes a nullity and void.
• Regarding the mandatory requirement SC from the
very start took a strict view for Art 299(1).
• This can be seen in the case K.P. Chowdhary v State of
M.P
• The facts was with respect to an auction for forest
contracts. The appellant made the highest bid and after
the auction, he signed a contract form with a surety.
• As the bid amount was higher than what the
immediate officer could accept, he referred the matter
to the DFO for sanction and signature.
 continued…
• In the mean time a dispute arose between the bidder and the
forest dept. regarding the marking of the trees auctioned.
• As the dispute was not settled to the satisfaction of the
bidder, he refused to complete the contract
• Subsequently notice was given to the appellant that failure to
complete the necessary formalities with in a week, the
contract would be cancelled and would be re-auctioned and
he would be required to meet the deficiency if any
• The appellant filed a writ petition to challenge the recovery
proceedings against him
• Court ruled that if Art. 299 is not complied it would be no
contract at all and could not be enforced either by the govt. or
the other party as a contract
• So since Chowdhary case (1967) the view has
come to be accepted that A299(1) is
mandatory
• But then at times court took a relaxed view of
compliance with A. 299
• They realized too rigid observance of the
conditions stipulated in that article may not be
a practicable proposition.
 Requirements under Art. 299
• 1. the contract must be expressed to be made
by the President or the Governor
In Chatturbhuj v Moreshwar Parashram court
held that constitutional provisions were
inserted to safeguard the govt. against
unauthorized contracts
• Same position was taken in Karamshi
Jethabhai Somayya v State of Bombay
• Appellant entered into a contract with the Minister
of PWD for the irrigation of his landholdings.
• Subsequently the contract was repudiated on the
ground that it was not expressed in the name of the
Governor.
• A suit was filed for specific performance of the
contract.
• Court dismissed appeal holding that the mandatory
requirements of Art. 299 had not been complied
with.
• Though the word ‘expressed’ in Art. 299(1)
suggest that the govt. contract must be in
some particular form, SC in Union of India v
A.L Rallia Ram held that no formal document
need be executed
• A valid contract may result from the
correspondence between the parties
• A.299 though provides that the govt. contracts
must be expressed in the name of
President /Governor as the case may be,
• A. 299(2) says they shall not be personally
liable in respect of any contract or assurance
• 2.the contract must be executed on behalf of the President or
the Governor
• Competent authority must execute the contract on behalf of
President/Governor
• -if such authority by mistake or otherwise does not sign on
behalf of the chief executive the contract shall be invalid
• However court has mitigated the harshness of this rule by
holding in D. G. Factory v St. of Rajasthan that in the absence
of specific rule,
-if the competent authority has signed the contract deed in its
official capacity, the requirement of Art. 299(1) shall be
deemed to have been complied with.
- HERE, contract for the supply of police uniforms was signed by
the IG who did not write after his signature ‘signed on behalf
of the Governor’
• 3. the contract must be executed by a person
authorised by the President or the Governor
• ie., by an’authorised person’
• This is to protect state from spurious claims made on
unauthorised contracts
-Art. 299 does not lay down any specific mode of
authorisation
-thus the normal procedure of notification in the official
gazette may be considered as proper authorisation
-lack of proper authority would render the contract invalid
• However, in order to avoid hardship the court
held in State of Bihar v Karam Chand Thapar &
Bros. Ltd in the absence of any specific
authorisation, implied authorisation may be
considered as substantial compliance with the
requirement of Art. 299(1)
 Facts of the case
• Respdt. Co. entered into construction contract with the govt. of
Bihar
• After completion of contract a dispute arose on payment and
was referred to arbitration
• On the basis of award, Co. filed a petition for a decree
• Suit was contested by the govt., that arbitration agreement was
not executed by the Secretary to the govt. for PWD, who was
the authorised person
• Co. held that Executive Engineer(EE) signed after necessary
instructions from the Secretary
• Court held EE though not specifically authorised was impliedly
authorized on an adhoc basis.
• 4. ratification
-whether an agreement which does not fulfil the
requirements of Art. 299(1) can be ratified by
the govt. ?
-this has been answered in negative by SC in
Mulamchand v St. of MP
That is govt. cannot ratify a contract if it does not
comply with the requirements of Art. 299(1)