Open Access Research Article
Government Contracts and its facets (By–Oishiki Bansal)
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Government Contracts and its facets
Authored By – Oishiki Bansal
Introduction
Contract acts as a very essential
element in our day to day lives. In our country the statute governing contracts
law is The Indian contracts Act, 1872. The State can also enter into agreement
with the other parties in the country. Government contracts tend to explain the
relationship of government as one of partnership and a cooperative arrangement[1]. However, the executive in India derives its
power to enter into a legally binding contract via Article 298[2]
and Article 299[3] of the
Indian Constitution.
This article is divided into four
parts for better understanding of government contracts and its facets. The
First part of the article focuses on how judicial intervention has brought
equality in the manner the government enters into a contract with public and
private parties. The second part of the article focuses on the scope of
judicial review of contractual liability of governments arising out of the
contracts. The Third part discusses how the government can enter into
contracts. Fourthly, the article explains the quasi contractual liability of
the Indian government. To understand the quasi contractual liabilities in case
of breach of contracts the legal systems of the United States and England have
also been discussed.
I.
Equality With Reference To Government
Contracts
With the technological advancement
and growing need to redistribute the resources of a nation, the role of the
state as an entrepreneur and a regulator grew. With this the involvement of the
private sector also increased in providing more facilities to the nation as a
whole. With time the role of private and public enterprises started coinciding
and both became pivotal in the growth of the nation. This led to an increase in
the contracts between government and private enterprises and the interference
of law in the contracts.
Equality refers to the commonly
perceived notion that those who are alike are to be treated alike until and
unless there is some reasonable classification or intelligible differentia as
inferred from Article 14 of the Indian Constitution.
V.G. James[4]
has discussed the judiciary’s stand on the equality achieved by the government
while making contracts with the private individuals and parties. He has
established a relationship of the powers given to the constitution under
Article 298 of the Constitution with Article 73[5]
and 162[6] of
the constitution for the Union and the State respectively. Which provides basis
for the reasoning that the power of the state to enter into an agreement with a
private individual or party is co – extensive with that of the executive power
and the executive power is co – extensive with the legislative power thus, the
legislature can restrict the power to enter into contract which are in public
interest[7].
In a case where the petitioner
challenged the termination of contract on the basis of violation of fundamental
right of right to equality of supply of milk by the government so that the same
contract can be given to a cooperative society[8].
The Supreme Court held that the parties with whom the government enter into
contract are mere party to the contract and not the employees of the government[9]
and thus Article 16(1)[10]
of the Constitution which is limited to government employees cannot be applied
in the said case. Although in another case[11]
the Apex Court held that “Every activity of the Government has a public element
in it and it must, therefore, be informed with reason and guided by public
interest. Every government cannot act arbitrarily without reason and if it
does, its action would be liable to be invalidated[12]”.
In the case of Punnen Thomas v State of Kerala[13], where certain individuals were blacklisted by the
government from entering into contracts and the government further refused to
hear such parties on the ground of freedom of entering into contract, the court
held that the government unlike any private individual is also free to enter
into contract. However, J. Mathew’s dissenting opinion was that the government
cannot be arbitrary and unreasonable as a free man as it is
restrained by its duty
and responsibilities of a democratically elected representative. The minority
view of J. Mathew in the above case was approved by the Supreme Court in the
case of Erusian Equipment and Chemicals Ltd. v State of West Bengal[14],
where again certain individuals were blacklisted the court held that an
individual cannot be blacklisted without an opportunity of fair hearing.
Blacklisting of individuals in public contracts violates the right to equality
of such individuals.
It has been established by the
Supreme Court that Article 14 of the Constitution provides all the parties
whether public or private an equal opportunity to enter into contract with the
government. Government contracts are an integrative way of executing public
works and our state being a welfare state fairness in making contracts is
necessary.
II.
The Scope
Of Judicial Review Of Government Contracts
A government contract is entered into
by constitutional provisions however, once a contract is entered into by the
government it comes under the ambit of Indian Contracts Act. Judicial review of
government contracts can be segregated as “awarding a contract” and “post –
award matters”. Ravindra Kumar Singh[15],
has argued that the power of the Supreme Court and High Courts to review the
contractual liability of the government via Articles 32[16]
and 226[17]
of Indian Constitution respectively. He has further endeavored on the reasoning
on which the domain of the public and private law can be differentiated, which
according to him is based on the facts of the case and thus differing on a
factual basis. A contract made while exercising the powers of the executive can
be said to be a government contract and thus is bound by the constitutional
provision of Article 299(1)[18].
A statutory contract is the exercise of ordinary power[19].
While defining a statutory contract the Supreme Court held that just because
the contract was made by “exercise of enabling power” it cannot be said to be a
statutory contract[20].
However, if the
contract adheres to the terms and
conditions of a statute then it can be said to be a statutory contract[21].
When it comes to contracts since both the parties are private they come under
the domain of private law and judicial review under Article 32[22]
and 226[23] cannot
be availed by the parties. Although, when one party to the contract is the
State, two things have to be considered. First, the liberty with the state to
act efficaciously and second, fairness has to be ensured while entering into
contract[24]. The
state enters into a contract as an executive thus, they lie under the ambit of
‘State’ as given under Article 12[25]
and are liable to be subjected to Part III[26]
of the constitution. Thus, it can be said that the judiciary has a scope to
review the contractual liability of the state by way of the writ jurisdiction[27].
In the case of Tata Cellular v Union of India[28],
the Court opined that to avoid conditions of arbitrariness and ‘favoritism’ the
court can review the contracts on the ground of illegality, irrationality and
procedural impropriety[29].
The State can use any method or way to award the party to the contract as there
is no constitutional mandate to the same but the court can judicially review
such method or way via Article 14[30]
on the grounds of arbitrariness and fairness[31].
III.
Power Of
The State To Enter Into Contracts
The government of India or a state
can enter into contract with private individuals by exercising their executive
power by the virtue of constitutional provisions such as Article 298, 299, 73
and 162 of the Constitution. Article 298[32]
empowers the State to enter into a contract and Article 299[33]
provides conditions for such a contract to be a legally binding contract read
with the Indian Contracts Act, 1872.
The conditions that the government
needs to follow before entering into a contract are as follows-
1)
The
contract has to be entered in the name of the President in the case of the
Union or the Governor in the case of the State.
2)
The
contract between the state and a party cannot be made orally, it has to be in a
written format which can be duly executed[34].
3)
The
contract made has to be formally expressed, a contract by the state cannot be
created impliedly[35].
The objective of Article 299[36]
is to protect the government from being burdened government with onerous
liability occurred due to unauthorized contracts or any spurious claim made due
to any contract made by an unauthorized way[37].
In the case of Seth Bhikraj Jaipuria V Union of India[38],
the Supreme Court held that a contract made without adhering to any of the
essentials as mentioned in Article 299 of the Constitution would render the
contract as null and void. And the question as to whether all the essentials
are being fulfilled in not solely the question of law but also a question of
fact[39].
Section 175(3)[40] and
Article 299[41] are
similar in nature nonetheless no mode of authorization has being prescribed by
both the provisions. Thus, the preferred mode of authorization is publication
of the contract in the Official Gazette of India[42].
A government contract by the virtue
of Article 299(1)[43]
is executed in the name of the President/Governor, nonetheless according to
Article 299(2)[44]
provides immunity to the President/Governor against liability arising out of
contractual obligations. In case of breach of contract the party to the
contract can sue the Government of India or a state directly in the court of
law. In the case of Mulamchand v State of Madhya Pradesh[45],
the Court held that the doctrine of estoppel or ratification cannot be used in
government contracts as it will defeat the constitutional provisions.
IV.
Quasi - Contractual
Liability Of The State
This section of the article discusses
the development of quasi - contractual liability of the state by way of a
comparative study of the legal systems of the USA and England. In the United
States by virtue of “The Court of Claims Act” and the “Federal District Courts
Act”, the judiciary has the power to decide the quasi – contractual liability
of the United States. The Acts provide that the Court can decide the liability
of the United State in cases of contracts; implied or expressed and the
liability which is not included under the ambit of torts. While adjudicating
the liability of the United States, the Court made a distinction between
contracts that are implied in fact and law. In the case of Clarke v United
States[46],
where there was a contract between a private individual and the government of
United States to provide a ship for some consideration and on the breach of the
contract the Court observed that, since the plaintiff is asking for relief out
of the facts of the contract he is entitled to damages. The Court has observed
that only the contracts that are implied in fact can be included in the expression
“contracts implied or expressed[47]”.
Secondly, according to the Acts mentioned above the Courts have been given
power to award compensation in cases of unliquidated and liquidated damages
which do not come under the ambit of torts. In the case of Bigby v United
States[48],
where a private individual sustained injuries while using a public elevator and
the injuries were sustained due to negligence of a government employee, and
thus, sued the United States for breach of an implied contract. The court held that
the plaintiff only had the recourse to action under the law of torts and not
under contracts. However, now the plaintiff cannot sue the state under torts
after waiving the right in torts. Thus, the principle that is established in
the United States is that there will be quasi contractual liability of the
government in cases of breach of contract wherever a remedy is available
against a private individual[49].
Further, where there is any liability that arises against the government which
involves the law of torts, the courts do not have any jurisdiction to
adjudicate such cases.
England follows the rule that the
crown can do no wrong, however, in the case of quasi – contractual liability
this view has been changed by the help of various precedents and The Crown
Proceedings Act, 1947[50].
In the case of Feather v The Queen[51],
the Court observed that a “petition of right” is available to private
individuals in case of breach of contract, where such contracts were for
providing goods to the crown or any public service[52]. Further, in the case of United Australia
Limited v Barclays Bank Limited[53],
the Court opined that where the crown has committed any legal wrong for which
any individual party would have been liable, the crown would be held liable,
whether such wrong is in the nature or torts or any other legal wrong. Although
in England the principle is much different than that of the United States. In a
case where a petition of rights was filed for compensation against the “Defence
of the Realm Regulations”, the court held that there is no need to look into
contractual liabilities and whether there is a breach of contract or not, what
needs to be looked into is the when something is legally done, the obligation
is on the subject to complete the consequences arising out of such legal act.
Thus, in England it has been made clear that the crown can sue for quasi –
contractual liability arising out of the breach of a contract. Moreover, this
view has been solidified after the enactment of the Crown Proceedings Act of
1947.
In India the quasi – contractual
liability of the government has been inferred from the Indian Contract act,
1872 and the stance has been made clear by the judiciary. Quasi contractual
liability is applied against the government so as to prevent any kind of
“unjust enrichment” arising out of these contracts. In case of the breach of
contract or any term of the contract, the parties can claim compensation via
Section 70 of the Indian contract Act, 1872 or if the contract already has any
arbitration clause the parties can resort to the same. In the case of State of Haryana v Lai Chand[54],
the court held that a statutory contract does not lie under the ambit of
Article 299 of the Constitution. In the case of State Of West Bengal V B.K
Mondal and Sons[55], there
was no authorized contract made between the respondent and the officers who
asked the respondent to do the work. However, the work done by the respondent
was accepted by the government, however, refused to give the award of the
contract to the respondent. The government stated the reason that there was no
official contract made and authorized as per Section 175(3)[56]
and Article 299[57].
Thus, the respondent claimed that since there
was no official contract the liability of the government lied under Section 70[58] as
the government has reaped the benefit of the contract. The court held the
government to be liable and asked the government to pay compensation to the
respondent. The Court further opined that since the fields covered by Section
70 of the Contracts Act and Section 175(3) of the Government of India Act are
different, Section 70 of the Contracts Act, 1872 will directly or indirectly
nullify the effect of Section 175(3) of the Government of India Act.
Conclusion
The executive in India performs three
functions i.e. of quasi-legislative, quasi-judicial and executive[59]
thus, the power of the executive needs to be controlled. The Indian
Constitution itself provides the executive the power to enter into contracts
with the private parties and individuals. On the breach of the terms and
conditions of the contract, both the parties should have equal opportunity to
hold each other accountable and liable for the damages. The relief to liability
arising out of the contract is provided under Section 70[60]. Where the question is related to public
domain i.e. in the interest of the public, the parties can also ask for relief
by way of writ jurisdiction. The Courts have the power to determine the
validity of the contracts on the principles of fairness and equity.
Article Information
Government Contracts and its facets (By–Oishiki Bansal)
Authors: Oishiki Bansal
- Journal IJLRA
- ISSN 2582-6433
- Published 2022/09/20
- Volume 2
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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