The government performs many duties for the country’s welfare and administration. While doing so, it may cause harm to people, enter into contracts, or use special sovereign powers. This raises an important question: Can the government be held legally responsible for its actions or failures?
In India, the government is not above the law. It can be held liable for wrongs done by its employees, for breaking contracts, and for certain acts that affect people’s rights. However, the extent of this liability depends on the situation and the legal rules that apply.
State Liability for Torts
A tort is a civil wrong that causes injury or loss to someone and gives the right to claim compensation.
The State can be held liable when its employees commit civil wrongs while doing their jobs — for example, negligence, wrongful detention, or damage to property.
A. Sovereign and Non-Sovereign Functions
Earlier, courts decided state liability by dividing government work into two types:
- Sovereign functions: Traditional State powers such as defence, maintaining law and order, and administration of justice.
- Non-sovereign functions: Activities that private people or companies can also do, such as running transport services, running commercial businesses, or doing other ordinary work.
Traditionally, the State enjoyed immunity (protection from liability) for acts done in sovereign functions. It could be held liable only for wrongs done in non-sovereign functions.
B. Important Constitutional Provisions
- Article 294: Deals with the transfer of property, assets, rights, liabilities and obligations from earlier governments to the Union and State Governments.
- Article 300: Allows the Government of India and State Governments to sue and be sued in their own names, subject to the Constitution and other laws.
- Article 21: Protects the right to life and personal liberty. If State authorities violate this right, courts can award compensation in suitable cases.
- Articles 32 and 226: Give the Supreme Court and High Courts the power to issue writs and other remedies when fundamental rights are violated.
C. Important Case Laws
- Peninsular and Oriental Steam Navigation Co. v. Secretary of State for India (1861): The Court accepted the distinction between sovereign and non-sovereign functions. The government could be held liable for negligence in non-sovereign work.
- State of Rajasthan v. Vidyawati (1962): A government driver negligently caused a pedestrian’s death. The Supreme Court held the State liable because the act was not a sovereign function.
- Kasturi Lal Ralia Ram Jain v. State of Uttar Pradesh (1965): Police seized gold which was later misappropriated by a police employee. The Supreme Court gave the state sovereign immunity because the act was done in the exercise of police powers.
- Nagendra Rao & Co. v. State of Andhra Pradesh (1994): The Supreme Court narrowed the scope of sovereign immunity. It said the State cannot claim immunity for every governmental activity. Immunity should be limited to essential sovereign functions only.
- Nilabati Behera v. State of Orissa (1993): The Court awarded compensation for custodial death and recognised that public-law compensation for violation of fundamental rights is available. Sovereign immunity is not a defence in such cases.
- K. Basu v. State of West Bengal (1997): The Court laid down important safeguards against custodial torture and illegal detention and confirmed that compensation is a public-law remedy for violation of fundamental rights.
Principle: The State can be held liable for tortious acts of its employees. The old defence of sovereign immunity has been greatly reduced, especially when fundamental rights are violated.
State Liability for Contracts (Government Contracts)
The government often enters into contracts for construction, supply of goods, public services and development work.
When the government makes a contract, it generally has the same rights and duties as a private party.
A. Constitutional Provisions
- Article 298: Gives the Union and State Governments power to carry on trade or business, own property, and make contracts.
- Article 299: Lays down the formal requirements for government contracts.
- Article 300: Provides the legal basis for filing suits by or against the government.
B. Essential Requirements Under Article 299
A valid government contract must:
- Be expressed to be made in the name of the President (or the Governor of the State);
- Be executed on behalf of the President or Governor; and
- Be executed by a person properly authorised for that purpose.
These requirements are mandatory. If they are not followed, the agreement cannot normally be enforced as a valid government contract under Article 299.
C. Liability for Breach of Contract
If the government fails to perform its contractual duties, the other party can claim damages, subject to the terms of the contract and the law.
If the formal requirements of Article 299 are not met, the agreement cannot be enforced as a valid contract. However, in suitable cases, the other party may still claim restitution (reasonable compensation) under Section 70 of the Indian Contract Act, 1872, if the conditions of that section are satisfied.
D. Important Case Laws
- Bhikraj Jaipuria v. Union of India (1962): The Supreme Court held that the requirements of Article 299 are mandatory.
- P. Chowdhry v. State of Madhya Pradesh (1966): A contract that does not meet Article 299 requirements cannot be enforced as a valid government contract.
- State of West Bengal v. B.K. Mondal & Sons (1962): The government took the benefit of construction work even though the formal requirements were not met. The Court allowed a claim under Section 70 of the Contract Act.
- Mulamchand v. State of Madhya Pradesh (1968): A contract that violates Article 299 cannot be enforced as a contract, but a claim for restitution under Section 70 may still be possible.
- Shrilekha Vidyarthi v. State of Uttar Pradesh (1991): Even in contractual matters, the government must act fairly, reasonably and without arbitrariness under Article 14.
Principle: The government has contractual rights and duties like any other party, but its contracts must satisfy the special formal requirements of Article 299.
Government as a Contracting Party: Article 14 and Fairness
The government does not stop being a constitutional body when it enters into a contract. Its decisions in contractual matters must still be fair, reasonable and non-arbitrary.
If the government cancels a contract or blacklists a contractor in an arbitrary manner, the affected person can challenge the action under Article 226.
However, not every contractual dispute becomes a constitutional matter. Courts look at whether there is arbitrariness, unfairness or violation of public-law obligations.
Important Cases
- Ramana Dayaram Shetty v. International Airport Authority of India (1979): Government authorities must follow fair and non-arbitrary standards while awarding public contracts.
- Tata Cellular v. Union of India (1994): Courts generally review the decision-making process in government tenders and do not substitute their own commercial judgement.
- ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd. (2004): A writ petition can be maintainable in contractual matters if state action is arbitrary or violates public-law obligations, even when some facts are disputed.
Act of State
The doctrine of the Act of State refers to an act done by a sovereign state in the exercise of its external sovereign authority—usually in relation to another state or its subjects.
Typical examples include annexation of territory, conquest, or exercise of sovereign power over foreign territory.
An Act of state is different from ordinary government acts. It relates to the external sovereign powers of the State and is not treated like a private-law transaction (tort or contract).
Essential Features
- It is done in the exercise of external sovereign authority.
- It generally concerns relations with another state or persons connected with foreign territory.
- It may involve acquisition, annexation or conquest of territory.
- It is not governed by ordinary private-law rules in the same way as tort or contract liability.
- Once the territory becomes part of the State, later actions of the government are governed by the Constitution and ordinary laws.
Important Case Laws
- Secretary of State v. Kamachee Boye Sahaba (1869) 7 M.I.A. 476: The Privy Council recognised the doctrine of Act of State in the context of annexation of the Raja of Tanjore’s territory and seizure of property.
- Johnstone v. Pedlar (1921): The House of Lords explained that the doctrine does not automatically protect every act of the state against individuals. A distinction must be drawn between an act of state and ordinary acts that can give rise to legal liability.
Principle: An Act of State concerns the exercise of external sovereign authority and must be distinguished from ordinary administrative, contractual and tortious acts of the government.
Other Important Legal Provisions
- Section 70, Indian Contract Act, 1872: Allows a claim for compensation when a person lawfully does something for another (or delivers something) without intending to do it free of charge, and the other person enjoys the benefit.
- Section 73, Indian Contract Act, 1872: Provides for compensation for loss or damage caused by breach of contract.
- Section 80, Code of Civil Procedure, 1908: Generally, requires two months’ prior written notice before filing a suit against the government or a public officer for an official act. An exception is available under Section 80(2) with the court’s permission.
Difference Between the Three Concepts
The following table explains the distinction between state liability for torts, state liability for contracts and the doctrine of the Act of State.
| Basis | State Liability for Torts | State Liability for Contracts | Act of State |
|---|---|---|---|
| Meaning | Liability for civil wrongs | Liability for contractual obligations | Exercise of external sovereign authority |
| Nature | Civil wrong | Breach of contract | Sovereign act |
| Legal Basis | Article 300 | Articles 298, 299 and 300 | Doctrine of international & constitutional law |
| Example | Negligent driving by a government employee | Failure to perform a valid government contract | Annexation of foreign territory |
Conclusion
The government is not above the law. It must act within the limits of the Constitution. It can be held liable for tortious acts of its employees, for breach of valid contracts, and for arbitrary decisions. Articles 14, 21, 298, 299 and 300 play a central role in fixing governmental liability.
Although the doctrines of sovereign immunity and Act of State give limited protection in certain situations, they cannot be used as a general excuse for arbitrary or unlawful government action. The ultimate aim is to ensure accountability, fairness and the rule of law.
Accuracy note: The correct citation of Secretary of State v. Kamachee Boye Sahaba is (1869) 7 M.I.A. 476. The sovereign-immunity principle laid down in Kasturi Lal must be read subject to the later limitation in N. Nagendra Rao and the constitutional compensation principles recognised in Nilabati Behera.
