In England the concept The King can do no wrong
had its sway. All the
courts in England were under the Crown and hence Ould not be sued. Absolute
immunity was provided to the Crown and hence couldnít be held liable for the
acts of their servants. After the Crown Proceeding Act 1947, the immunity
provided to them was abolished and the Crown could be held liable for
contractual (and tortuous) obligations.
In India under article 294B states about the liability of Union and State
Government can be sued under any contract(tortuous liability as well)The
government and state can be sued with regard to their respective affairs.
Liability of state:
Under article 300 of the constitution which empowers the principle, state can be
sued in its own court subject to certain principles of liability.
In Stream Navigation Company case
the SC stated that as the general rule
is concerned, it is there for the attribute of sovereignty that the state canít
be sued without the consent and with this respect distinction between sovereign
and non-sovereign functions were drawn.
Sovereign and Non-sovereign function:
Sovereign function is one where the state is not answerable to the court for the
functions which concerns defence, maintenance of armed forces, peace of the
state while non sovereign functions are those functions under which the state
can be sued. It includes any kind of tort or breach of contract, they will be
liable for their damages which is states.
In State Of Rajasthan v/s Mrs. Vidyavati
, Vidyavatiís husband died of an
accident caused by the government driver who was driving negligently the
government jeep from the garage to the office. Vidyavati sued the government ,
for compensation. It was held valid as he died during the course of his
Liability of state in a contract under article 299:
The objective of this article is to safeguard the government and not to saddle
the government with obligations, which are made by unauthorised officers or in
excess of authority. Saving funds is essential. Hence if the contract is invalid
the government can ratify and make modifications and can make it valid.
In article 299 it states the requirement of the formulation of contract:
- Contract made by President or governor
- By state or union
- It should be assumed all the contracts were under the eye of president
- Governor or president can authorise agent to enter in their behalf
- Should be a written contract (oral contract is not binding on the
It is not directory but mandatory that it must be complied with all the
requirements under article 299, hence it canít be enforced by the government or
the other party. When the contract is valid, article 299 immunes the Governor or
President and also the person they authorised will also be immune.
Mahabeer Auto Store v/s IOC
- Contract made by an unauthorised person
In UOI V NK Pvt Ltd, railway board made an offer to the company to maintain
surplus trains. The authorised person was the director of store on behalf of
President. The letter of acceptance was given by secretary. It was held not
binding as the contract created was by an unauthorised person.
- Even if the contract is void if the state acquires any kind of benefit
theyíll be liable to pay:
State Of West Bengal v/s BK Mondal
Construction was to be executed by the respondent and the building was
constructed and that it was used for government purpose. No payment was made to
the contractor. The government claimed as all the requirements of article 299
were not in compliance the contract was not enforceable. The SC held that it is
not enforceable but the government needs to pay under section 70 of Indian
Contract Act for which the work has been done.
- When the government didnít receive any kind of benefit under void
In State Of UP v/s Murari Lal & Brothers
Officers of agricultural department was not authorised to enter into contract on
behalf of government. He entered into a contract for space of cold storage for
potato. But the government never sent the potato. The place was kept vacant and
the person suffered loss. It was held not applicable under article 299 and
section 70. Hence the party will have no over the claim as no benefit was taken
by the government. Till there is no benefit it canít claim for money.
LIC India v/s Consumer Edu & Research Centre
When a matter of state action, the action of state having public interest
authority, the terms and policy were restricted to some class of person and for
other people the benefit was not available. Because it states instrumentality it
must make fair, just and socio economically correct policy and if the policy is
not biding to these it wonít be valid.
- When the contract is between state and a person it is precisely
contractual and also the rights. The court can entertain the petition in the
area where the contract shows arbitrariness, unjust and unfair.
The petitioner carried business of lubricant service for 18 yrs. IOC suddenly
stopped the supply and no opportunity was given. The SC held that it is well
settled principle, every action taken by instrumentality of state, it should be
taken without any arbitrary and should be informed(reasoning should be given) as
IOC comes under article 12 and should follow rules and tell the termination
reason which should be relevant. Government while entering into contract should
give equal opportunity to everyone.
Eurasian Equipment & Co Ltd v/s State Of West Bengal
Government blacklisted some person to enter into contract. This hampered them to
enter into contract . All the individuals should be given equal right to
opportunity to be heard and also the reason should be valid.