Scope of Article

• The constitutional basis of government contracting under Articles 298 and 299
• The three mandatory conditions under Article 299(1) and the judicial standard of substantial compliance
• Consequences of non-compliance: void ab initio contracts, and the bar on estoppel and ratification against the Government
• The quasi-contractual remedy of restitution under Section 70 of the Indian Contract Act, 1872
• Article 299(2) and the personal immunity of the President, Governor, and authorised officers
• Special procedural rules that apply when the State is a litigant, including notice under Section 80 CPC and suits under Order XXVII CPC
• Recent judicial treatment of Article 299 in the context of arbitration clauses, with reference to Glock Asia-Pacific Ltd. v. Union of India
• A concluding assessment of how these rules balance public accountability against fairness to private contracting parties

Abstract

Article 299 of the Constitution in the manner in which contracts are made in the exercise of the executive power of the Union or a State, and its requirements are mandatory and not directory in nature. A contract, the making of which is not expressed to be made by the President or the Governor and executed on his behalf by a person authorised to act on his behalf and attested by such person is void, and it cannot be enforced against the Government on the basis of estoppel, ratification or any other plea. However, the severity of this rule is mitigated by the liberal judicial interpretation that substantial compliance with the requirements of Article 299 is sufficient, and also by the availability of the remedy of restitution in case of a private party suffering loss due to reliance on such a contract in accordance with Section 70 of the Indian Contract Act, 1872. This article attempts to trace this development from its first appearance in the case of Chatturbhuj Vithaldas Jasani v. Moreshwar Parashram through the more stringent interpretation of K.P. Chowdhry v. State of Madhya Pradesh to the restitutionary remedy developed by the Supreme Court in Mulamchand v. State of Madhya Pradesh. The article also highlights the application of this rule in the recent case of Glock Asia-Pacific Ltd. v. Union of India which dealt with arbitration of disputes concerning a contract with the Government, and the special procedures that apply to Government contracts upon institution of proceedings, including the notice requirement under Section 80 of Code of Civil Procedure, 1908.

Keywords: Article 299; government contracts; 298; 70 Contract Act; sovereign immunity; 80 CPC

1. Introduction

The Government of India and the governments of the States enter into an enormous number of contracts every year, for everything from stationery supplies to large infrastructure and defence procurement. These are not, in a legal sense quite like contracts between two private parties. Because public money and public accountability are involved, the Constitution itself prescribes a special form in which such contracts must be made, and departs from ordinary contract law in several other respects once the Government is a party. Article 299 contains the form; some other articles, ranging from Article 70 of the Indian Contract Act, 1872 to Article 80 of the Code of Civil Procedure, 1908 contain the special procedure that applies in case this form has been or has not been followed.

This article will first examine the actual requirement contained in Article 299, the consequences of failure to meet such requirement, and finally the general body of special procedure that is applicable in all cases where the State is a party to a contract or any suit that may arise therefrom.

2. The Constitutional Basis: Articles 298 and 299

Article 298 provides that “The Union and the States shall have the authority to conduct trade or business, to acquire, hold and dispose of property, and to make contracts in any manner.” However, Article 299(1) states that:

“All such contracts shall be expressed to be made by the President, or by the Governor of the State concerned; and all such contracts and assurances of property shall be executed on behalf of the President or the Governor by such persons and in such manner as he (that is the President or the Governor) may direct or authorise.”

Article 299(2) further states that: “The President and the Governor shall not be personally liable in respect of any contract made for the purposes of this Constitution, and no person who shall make or execute any such contract on behalf of the President or the Governor shall be personally liable in respect thereof.”

Therefore, in Chatturbhuj Vithaldas Jasani v. Moreshwar Parashram [AIR 1954 SC 817], it was observed by the Supreme Court that in order for a contract to be binding on the Government, the following three points need to be satisfied :

(a) That it should be expressed to be made by the President or the Governor. (b) That it should be executed on his behalf. (c) That it should be executed by a person authorised for that purpose and in the manner so authorised.

The Court further pointed out that the policy consideration underlying Article 299 is a protective one, for the very reason that if the liabilities of the Government were to be incurred on mere unauthorized undertakings on its behalf without its knowledge or approval, the public funds or property would stand to be unnecessarily jeopardized, and for the additional reason that it is in the public interest that every member of the public should be able to be assured that any person executing a contract on behalf of the Government is, in fact, duly authorized to do so.

3. Substantial Compliance and the Limits of Formalism

Such a rule, rigorously applied by the letter, could only prove unworkable in practice as so many relatively minor transactions are entered into by Government departments that the Government would always find some ground of trivial technicality upon which to withhold liability. Courts have, accordingly, tempered the rule to some extent by taking the view that what Article 299(1) requires is substantial, rather than exact, compliance. Where a contract has in fact been authorised, executed in writing, and signed by a person competent to bind the Government, minor lapses from the model drafting, such as the precise wording of the recitation of the signing as “on behalf of the President”, will not necessarily prove fatal where the requirements of substance are otherwise met.

4. Non-Compliance: Void Ab Initio, No Estoppel, No Ratification

Where the three conditions are not substantially met, the consequence is severe. The Supreme Court in K.P. Chowdhry v. State of Madhya Pradesh, [1966] 3 SCR 919, however, held that Article 299 excludes the possibility of an implied contract with the Government altogether. In that case, a bidder at a forest auction had orally agreed to pay a higher amount, but a contract in the constitutionally required form was never executed. The Court held that neither the Government nor the private party could enforce such an arrangement, for Article 299 admits of no contracts that arise by conduct or by implication; there must be an express, written agreement conforming the prescribed formalities, or there is no binding contract at all.

Two further consequences flow from this. First, the doctrine of estoppel cannot be invoked to hold the Government to an arrangement that does not conform to Article 299(1), for estoppel operates only against a party’s own prior representation, and a representation made without constitutional authority cannot found an estoppel that in effect rewrites the Constitution’s own formal requirements. Second, a defectively formed contract cannot later be cured by ratification. For ratification presupposes an act done on behalf of a principal who had the capacity to authorise it in the first place, and a void transaction has, in law, no existence to ratify. Taken together, these rules mean that a private party dealing with the Government carries a real burden of satisfying itself, before it starts performing, that the contract in front of it actually conforms with Article 299, since neither good faith nor part performance will rescue an informally made agreement.

5. Restitution Under Section 70 of the Indian Contract Act

The harshness of this proposition would leave a private party who has already tendered goods or performed service to the Government under a contract subsequently held to be void for absence of the conformity with Article 299, with no remedy, which would be wholly unjust. The Supreme Court has had occasion to consider this very issue and has held that although such a contract is void ab initio and cannot be specifically enforced as a contract, the private party that has conferred some benefit on the Government is entitled to recover the value of the same under Section 70 of the Indian Contract Act, 1872. A contract which is void ab initio and incapable of enforcement by specific performance may, nevertheless, entitle the private party to relief. The Court held that when a person lawfully does something for another person, and the latter enjoys the benefit of it, the latter must compensate the former for the cost incurred in doing so unless the former does it gratuitously. A quasi-contractual obligation thus arises which survives the invalidity of the contract and the Government cannot enjoy the benefits of the performance of a contract without compensating the private party. This is a most important qualification on the blanket immunity enjoyed by the Government under Article 299; although the Government cannot be compelled to perform its obligations under an unauthorized contract it cannot take advantage of the other party’s performance without compensation.

6. Article 299(2): Personal Immunity of the President, Governor, and Executing Officer

A narrow but related purpose is served by Article 299(2). It ensures that the President or the Governor who happens to be the authorised signatory and actually executes the contract on behalf of the Government, will not face personal liability merely because of their name or signature in the contract. The liability which arises on the signing of the contract is in fact not personal but belongs to the Union or the State as a juristic person. This provision enables them to do what they normally do- to sign contracts for the Government on a regular basis, without risking a personal suit against them in case of any dispute over a contract.

7. Special Procedural Rules When the State Is a Party to Litigation

Beyond the formation of the contract itself, Indian procedural law contains several special rules applying to disputes of this kind once they have come before a court. By section 80 of the Code of Civil Procedure, 1908, no suit shall be instituted against the Government, or against a public officer in respect of any act done in an official capacity, except suit for interim or urgent relief, until two months’ time has elapsed since service of a written notice upon the appropriate authority, specifying the grounds of action, stating the relief claimed, and giving the name and address of the plaintiff. This rule serves to allow the Government to investigate the claim and accept settlement without litigation if it is found to be justified, and courts have held that this requirement, unlike some of the formalities specified in Article 299, is susceptible of purposive reading rather than strict and literal construction, though it cannot wholly be dispensed with outside the statutory exceptions.

Order XXVII of the Code separately lays down the manner in which suits by or against the Government shall be conducted, including the signing and verification of pleadings on behalf of the Government and the use of titles by cause. Taken together with Article 299, these provisions show a common concern with dealings with the State, whether in contractual formation or in litigation, that they should take place through properly designated and authorised modes, in order to avoid risks of public accountability being undermined by unofficial action in the Government’s name.

8. Article 299 in Contemporary Practice: Glock Asia-Pacific Ltd. v. Union of India

Recent illustration: Glock Asia-Pacific Ltd. v. Union of India, 2023 INSC 568 decided on 19th May 2023. The dispute was regarding a 2011 tender for supply of pistols to the Ministry of Home Affairs containing an arbitration clause designating a serving government officer to act as the sole arbitrator. The Union of India, on the other hand, claimed that because this contract was expressed to be made in the name of the President under Article 299, the statutory bar in Section 12(5) of the Arbitration and Conciliation Act, 1996 which disqualified an employee of a party to an arbitration from acting as arbitrator did not apply to it. The Supreme Court completely rejected this argument, rejecting that it saw any immunity flowing out of Article 299 that could protect a Government contract from the general operation of a statute. An independent and retired judge, was in consequence appointed as the sole arbitrator instead of the Government nominee.

The importance of this ruling lies in how far it pushes the frontiers of the immunity to the Government contracts as provided in Article 299. Article 299 governs the formal validity of the contract as against the Government, and protects individual officers from being personally liable; it does not, and was never meant to, shield Government contracts from the operation of ordinary statutes once it is validly formed. Even a contract entered into by the President would be bound by all the laws related to business and procedure including the Arbitration and Conciliation Act. The government cannot selectively use the provisions of Article 299 in order to avoid its own obligations.

9. Conclusion

The status of Article 299 in the history of the Indian contract law is rather peculiar because it is a constitutional article that performs a function that would otherwise be fulfilled by the common principles of agency and authority for any other contracting party. The resulting rule is strict, and deliberately so, but it is not without its corrections. Substantial compliance is accepted in place of technical perfection, a party left empty-handed by a void contract can still fall back on restitution under Section 70 of the Contract Act, and, as Glock Asia-Pacific Ltd. shows, the Government cannot stretch Article 299 to claim an immunity the provision was never designed to confer. Read as a whole, the law strikes a considered balance: the State is protected from unauthorised commitments made in its name, while a private party who has genuinely dealt with the Government, and delivered value to it, is not left entirely without a remedy.