The world is witnessing continued increase in interconnectivity and economic activities. To enforce this expansion and protect everyone’s interests, contracts are required. Governments, just like individuals, need to enter into contracts for various purposes like carrying on trade or acquiring any property.
How do governments enter into contracts?
Indian Contract Act, 1872 is the law that governs contracts in India. Government contracts, however, are enabled through Article 299 of the Indian Constitution which states that “all contracts made in the exercise of the executive power of the Union or 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 the Governor”.
Form of contract: As per the Indian Contract Act, 1872, a contract may be oral or written in nature. Contracts can be expressed or implied as per circumstances and conduct of concerned parties. But in Bhikaraj Jaipuria vs Union of India, Supreme Court made two key observations when it comes to government contracts-
- A government contract must be a formally written contract. This means that government contracts cannot be implied in nature
- Provisions of Article 299(1) are mandatory.
Executive power: Government contracts are made in the executive power of the Centre and state governments. In the case of Steel Authority Of India Ltd vs State Of Madhya Pradesh, Supreme Court has observed that Article 299 applies only to contracts to be executed in exercise of ‘executive power’ and not to those executed by virtue of statutory power.
Liability: Article 299(2) states that the President, Governor or any concerned officials will not be personally liable in respect of any contract or assurance made. Since the protection is personal in nature, the government can still be held contractually liable.
In Chatturbhuj Vithaldas Jasani vs Moreshwar Parashram case, Supreme Court stated that Article 299 aims “to safeguard Government against unauthorised contracts. If in fact a contract is unauthorised or in excess of authority it is right that the government should be safeguarded.”