Contracts With The Government

Contracts with the
Government
Dr. Tabrez Ahmad

Art. 299 of the Constitution of
India

Dr. Tabrez Ahmad,
http://corpolexindia.blogspot.in 1

Article 299(1) of the Constitution of
India lays down:
“ 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
Governor …by such persons and in such
manner as he may direct or authorise.”
Dr. Tabrez Ahmad,

K.P. Chowdhary v State of Madhya
Pradesh AIR 1967 SC 203
In view of Art. 299(1) there can be no implied
contract between the government and another
person, the reason being that if scuh implied
contracts between 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….
Dr. Tabrez Ahmad,

The second consequence which follows
from these decisions is that if the contract
between Govt. 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 Govt. or by the
other person as a contract.”

Dr. Tabrez Ahmad,

 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
intention of the parties.
 In Mahabir Auto Stores v Indian Oil Corporation AIR
1990 SC 1013 (para 12) the basic principle relating to
power of the state to enter into or not to enter 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. In appropriate cases, actions uninformed by
reason may be questioned as arbitrary in proceedings
under Art. 226 or 32 of the Constitution.”
Dr. Tabrez Ahmad,

 Where a State or an instrumentality of
State constituted under Art. 12 of the
constitution, an action of its executive
authority to enter or not to enter into
contracts is subject Art. 14 of the
constitution. Whatever be the activity of
public authority in monopoly or semi-
monopoly dealings, it should meet the test
of Art. 14 of the Constitution.
Dr. Tabrez Ahmad,

State of West Bengal v B.K Mondal
&Sons
AIR 1962 SC 779.

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 contracts.

Dr. Tabrez Ahmad,

Sate of Punjab v Omprakash Baldeo
Krishan AIR 1988 SC 2149.

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 that there is a
valid contract in conformity with Art. 299(1)
of the Constitution of India.

Dr. Tabrez Ahmad,

Art. 299 of the Constitution and
Sec. 65 of the Contract Act 1872
 Where a contract is not enforceable 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 Pat 254.)

Dr. Tabrez Ahmad,

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 SC 779.
Obligation of person enjoying benefit of non-gratuitous act
 Where a person lawfully does anything for another person, or
delivers anything to him, not intending to do so gratuitously, and
such other person enjoys the benefit thereof, the latter is bound to
make compensation to the former in respect of, or to restore, the
thing so done or delivered.

Dr. Tabrez Ahmad,

Other provisions of the Indian
Contract Act 1872
 Govt. contracts subject to the provisions of Art.
299 of the Constitution of India and other rules
and notifications of the Govt. touching 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, contracts which need not
be performed, consequences of breach of
contract, indemnity, guarantee, agency will apply
with full force.
Dr. Tabrez Ahmad,

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 one rate for big manufacturers and another
for smaller manufacturers
 Such an action under the circumstances was
held reasonable and bona fide and it is not hit by
Art. 14 of the Constitution.

Dr. Tabrez Ahmad,

Lifting the Corporate veil in Govt.
contracts.
In Sterling Computers Ltd. V M & N Publications 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 such enquiry
 but at the same time the courts can certainly examine whether “
decision making process” was reasonable, rational, not arbitrary and
violation of Art. 14 of the Constitution.

Dr. Tabrez Ahmad,

Doctrine of indoor management in
Govt. contracts
 In U.P Rajkiya Nirman Nigam Ltd. V Indure Pvt.
Ltd. AIR 1996 SC 1373
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 Govt. or its instrumentalities to
deal on contractual relations with third parties.
Dr. Tabrez Ahmad,

Challenges to Govt. Contracts.
 Expressing annoyance at the Uttar Pradesh government's failure to
implement its order to check mafia infiltration in government
contracts, the Lucknow bench of the Allahabad High Court directed
the chief secretary to implement the directive in "letter and spirit".
A single-judge bench of Justice D P Singh passed the order after
perusing affidavits filed by the chief secretary and state police chief
on the implementation of the court's earlier directive.
The bench directed that the order be implemented with effect
immediate effect one in letter and spirit and posted the matter for
further hearing.
The court rejected the state advocate general's assertion that in the
absence of any act or statute, the government might not have power
to implement the directions issued by the court in their totality.

Dr. Tabrez Ahmad,

 The court had directed that the Pattanaik Committee report,
recommending measures to prevent the mafia from bagging
government contracts, be implemented.
The court, while accepting the report, said all government contracts
above Rs 1, 00,000 should be put on official websites along with the
provision to file tender documents online.
It also directed that adequate security arrangements and thorough
verification of police records be made at the place where tender bids
are opened.
The court had also directed that no contract or tender worth
Rs 2, 00,000 or more be accepted unless no-objection certificates of
the income tax and trade tax departments, district magistrate and
superintendent of police are furnished

Dr. Tabrez Ahmad,

Thanks we will continue…

Dr. Tabrez Ahmad,

Contracts With The Government

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