Judicial approach in the matters of government contract

Overview

The executive power of Government extends to carrying on of any trade or business or to acquisition, holding and disposing of property and it must perform various welfare functions, which makes it necessary for the Government to enter contract with private individuals. So, when a government enters a contract with anyone, it is a government contract. The contract must be expressed to be made by the President or the Governor of the state. Therefore, this requirement is not mere formality but mandatory.

The words “executed” and “expressed to be made” make it clear that the formal written document is necessary for a government contract. Consequently, if there is an oral contract, the same is not binding on the government. Thus, there can be no implied contract under this Article.

Judiciary’s Approach

The Supreme Court in Bhikraj Jaipuria v. Union of India, while interpreting Section 175(3) of the Government of India Act, 1935 held that requirements of this Section must be strictly complied with. In K.P Chowdhary v. State of M.P, the Supreme Court refused to imply a contract between the Government and the bidder saying that Article 299(1) was couched in mandatory terms, thereby ruling out all implied contracts between the government and another person.

The Supreme Court in the case of Karamshi Jethabhai v. State of Bombay, was of the view that where the appellant firm entered a contract with the Minister of the Public Works Department, and the officer under instructions of the Government repudiated the agreements, a minister or for that matter, anyone could not contract to bind the State unless authorized under Article 299(1).

Essentials of a valid government contract-

1. The contract must be expressed to be made by the President or the Governor of the state, as the case may be-

In Chaturbhuj Vithaldas Jasuni v. Moreshwar Parashram the Supreme Court held that the Constitutional provisions were inserted not merely for the sake of form but to safeguard the Government against unauthorized contract. In this case the question, which arose for consideration, was whether a person who has entered a contract with government in violation of the form prescribed in Article 299(1) was disqualified to be elected to the legislature under Section 7(b) of the Representation of the People Act, 1951. This contract had been entered into by a person authorized in this behalf but was not expressed in the name of the President. The Court held that the contract is void.

2. The Contract must be executed on behalf of the President or the Governor, as the case may be-

The other essential ingredient in government contract is that the competent authority must execute the contract on behalf of the President of India or Governor of the State, as the case may be; otherwise, the contract shall become invalid. However, it should not be considered to mean that for this purpose there must always be a formal document between the Government and the private individual. If the requirements of Article 299(1) are fulfilled, a valid contract may be created through offer and acceptance. Thus, a tender for purchase of good in pursuance of an invitation issued by or on behalf of the President or the Governor, and acceptance in writing which is expressed to be made in the name of the President or the Governor and executed on his behalf by a person authorized in that behalf will be treated as a contract in compliance with the requirement of Article 299(1) and therefore, it will be a valid contract.

However, the harshness of this rule was relaxed. Thus, a tender for purchase of good in pursuance of an invitation issued by or on behalf of the President or the Governor, and acceptance in writing which is expressed to be made in the name of the President or the Governor and executed on his behalf by a person authorized in that behalf will be treated as a contract in compliance with the requirement of Article 299(1) and therefore, it will be a valid contract.

3. The Contract must be executed by a person authorized by the President or the Governor, as the case may be-

The last essential ingredient for the validity of government contract is that such a contract must be executed on behalf of the Government by a person authorized for that purpose by the President or the Governor as the case may be. If it is made or signed by a person or officer who is not authorized by the President or the Governor, the said contract will be invalid. Such a contract will not be binding on the Government and cannot be enforced against it.

The Supreme Court held in State of Bihar v. Karam Chand Thapar that in absence of any specific authorization, implied authorization may be considered as substantial compliance with this requirement given under Article 299(1).

Ratification

The question arises whether an agreement which does not fulfill the requirements of Article 299(1) can be ratified by the government? As far as ratification is concerned, under general principles of contract law, it is possible for a person on whose behalf an agent has acted without authority to adopt that act so as to confer authority ex post facto. First time in State of West Bengal v. B.K. Mondal, the Court held that if the government contract is not in conformity with the form of Article 299(1), it is not technically so much void that it can be ratified. In State of Bihar v. Karamchand Thapar, the Court held that a contract by an unauthorized person could be ratified by the government but in Mulamchand v. State of M.P, the Court held that the enactment of the provisions of Article 299 being not a mere formality, its compliance could not be dispensed with and a contract with government not conforming with the provision of Article 299 could not be ratified. In State of Uttar Pradesh v. Murari Lal, the court specifically said, “the consensus of opinion is that a contract entered into without complying with conditions laid down in Article 299(1) is void”. The court was very specific that no question of ratification of such a contract could arise because being void it was not capable of ratification. Therefore, the government cannot ratify a contract if it does not comply with the requirements of Article 299(1) as to enable it to enforce it against private individual.

Inference

The essentials provided in Article 299(1) must be fulfilled otherwise the government cannot be held liable. In the absence of the above criteria, a contract would be void. The question arises that if a government contract is void for its non-compliance with the requirements of Article 299(1) and it cannot be ratified either, can the party claim the benefit of Sections 70, 230(iii) or 235 of the Indian Contract Act, 1872. However, the application of Section 70 does not pose much problem. In K.P Choudhary v. Madhya Pradesh it was held that there could not be any implied contract between government and citizens. In New Marine Coal Co. v. Union of India, the Supreme Court held that the government must make compensation for the coal supplied which has been consumed by it, even though the contract does not comply with the requirements of Article 299 of the Constitution. Therefore, if a person has done something for government under an invalid contract without doing it gratuitously and the government has obtained any benefit out of it, then the government is bound to make compensation.