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Liability of administration in contract/ Government contract

The government contact has become more significance in these days. Government will have to enter into contact with private organizations in order to carry out welfare activities. Government contract is that where one party is either central government/state government. The contact act defines the contract as "an agreement which is enforceable by law " (1). But in that Act now-where mentioned /defined about government contract. The contract must fulfill the essential requirement of section 10 of Indian contract Act,1872:
  1. There should be free consent,
  2. Parties must be competent to enter into contract,
  3. Contract should be for lawful consideration and for lawful object,

Constitutional provisions

Article 294: all property and assets which immediately were vesting with majesty for the purpose of the government dominion of India and government of each governors province shall such property and assets vest respectively in the Union and state. and all rights, liabilities and obligations of government of the dominion of India and governor's province which is arising out of contract shall be the government of India and of corresponding state.

Article 298:

The union and state shall carry out any trade or business and for that purpose, it can acquire, dispose or hold any property and can enter into contract.

Article 299:

All contracts made in exercise of the executive power of the union or state shall be expressly made by the president or by the governor of the state, and all such contracts and the assurance of property shall be executed on behalf of the president or governor of the state and they shall not be made personally liable for in respect of contract or assurance made for the purpose of the constitution nor shall any such individual person executing contract or assurance on behalf of them shall be made personally liable.

Article 300:

The government of India and government of state may be sued subjects to the provisions made by the act of parliament and legislature of state or by virtue of powers conferred by this constitution.

Requirements of government contract

Section 299 speaks about requirements to be fulfilled when entering into a contract. these are mandatory in nature.
  1. Contract to be expressly to be made by the president of India or governor of the state.
    Karam shi v. State of Bombay (2)
    In this case appellant enter into contract with minister of PWB irrigation of land. The contract was repudiated as it was not expressly made in the name of governor of the state. the court dismissed the case by saying that mandatory requirement of section 299 was not complied while making a contract.
  2. Contract must be executed on behalf of the president of India or the governor of the State.
    D.G.Factory v. State of Rajasthan (3)
    In this case there was a contract to supply a police uniform and that contract was signed by Inspector General Police on behalf of president /governor of the state without mentioning on behalf of president/governor of the state. The state contents that it is not a valid contract. The Supreme Court said that, in absence of specific rule if competent authority has signed the deed in its official capacity, the requirement shall be deemed to have been complied with.
  3. Contract must be executed by the person authorized by the president of India or governor of the state.

    State of Bihar v. Karamchand karm Thapar (4)
    In this case respondent company entered contract for construction of aerodrome with Bihar government. After completion of work the dispute arouse with regard to the payment. Matter was referred to the arbitration. The said agreement was made in favor of governor and was signed by the executive engineer. After the award was made, the government contended that it was signed by executive engineer who is not an authorised person to sign so the agreement is void. The supreme court held that there is a specific authorisation by the governor to execute the agreement.

In New marine coal company v. union of India (5)
In this case new marine coal company supplied coal to the government of Indi, and the government made use of coal , and when the company asked for money at that time government says that the contract does not satisfy the requirement of Article 299 of the constitution of India. The supreme court order the government to pay compensation which is consumed by it, as it has derived the benefit out of this contract.

Non - compliance
in case Mulam Chand v/s State of Madhya Pradesh (6),
In this case supreme court held that the question of ratification in government contract for non-compliance of Article 299 does not arise at ,all as it is not permissible.

The government contract is same as any other ordinary contract but the parties here will be central or the state government i.e president of India and governor of the State. Here, the contract should comply with the mandatory requirements which is mentioned in the Article 299 of the constitution of India and also the section 10 of Indian contract Act , 1872. The judiciary will also play a crucial role by exercising judicial review , it will look into that there will be no fraud and arbitrariness while entering into a contract.

  1. section 2(h) of the Indian contract Act, 1872.
  2. AIR 1964 SC 1714.
  3. AIR 1971 SC 141.
  4. AIR 1962 SC 110.
  5. 1964 AIR 152.
  6. 1968 AIR 1218.

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