–Contributed by Deepak Miglani( Legal Buddy)

The subject of government contracts has assumed great importance in the modern times. Today the state is a source of wealth. In the modern era of a welfare state, government's economic activities are expanding and the government is increasingly assuming the role of the dispenser of a large number of benefits. Today a large number of individuals and business organizations enjoy largess in the form of government contracts, licenses, quotas, mineral rights, jobs, etc. This raises the possibility of exercise of power by a government to dispense largess in an arbitrary manner. 

A contract is defined as 'an agreement in which one party offers to do something for a consideration and the other party accepts that offer'. The bulk of the transactions in trade, commerce and industry are based on these contracts. In India, the Indian Contract Act,1872 is the governing legislation for contracts, which lays down the general principles relating to formation, performance and enforceability of contracts and the rules relating to certain special types of contracts like Indemnity and Guarantee; Bailment and Pledge, and Agency.

The Indian Contract Act, 1872 does not prescribe any form for entering into contracts. A contract may be oral or in writing. It may be expressed or be implied from the circumstances of the case and the conduct of the parties.

Section 2(h) of the Indian Contract Act, 1872[2] defines a contract as "An agreement enforceable by law". The word 'agreement' has been defined in Section 2(e) of the Act as 'every promise and every set of promises, forming consideration for each other'

A contract to which The Central Government or a State Government is a party is called a 'Government Contract'.

But the position is different in respect of Government Contracts. A contract entered into by or with the Central or State Government has to fulfill certain formalities as prescribed by Article 299 of the Indian Constitution.

The executive power of the Union of India and the States to carry on any trade or business, acquire, hold and dispose property and make contracts is affirmed by Article 298 of the Constitution of India. If the formal requirements required by article 299 are complied with, the contract can be enforced against the Union or the States.

Article 299 provides: "(1) All contracts made in the exercise of executive power of the union or a 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 by such person and in such manner as he may direct or authorize.

(2) Neither the President nor the Governor shall be personally liable in respect of any contract or assurance made or executed for the purpose of any enactment relating to Government of India hereto before in force , nor shall any such contract or assurance on behalf of any of them be personally liable in respect thereof".

Thus Article 299 lays down three conditions which the contracts made in the exercise of the executive power of the Center or a State must fulfill to be valid –

o     The contract must be expressed to be made by the president or the Governor as the case may be;

o     These contracts made in the exercise of the executive power are to be executed on behalf of the President/Governor as the case may be;

o    The execution must be by such person and in such manner as the President or the Governor of the case as the case may be, may direct or authorize.

The expression "executed" does not by itself contemplate execution of a formal contract by the executing parties. A tender for the purchase of goods in pursuance of a tender notice, notification or statement inviting tenders issued by or on behalf of the President or the Governor, as the case may be, and acceptance in writing which is expressed to be made in the name of the President or Governor and is executed on his behalf by a person authorized in that behalf would fulfill the requirements of Article 299(1). If these requirements are fulfilled, a valid contract may result from the correspondence.

A contract complying with the Article can be enforced by or against the government. It is subject to the general provisions of the contract law, and its terms cannot be changed by resorting to Article 14 of the constitution. A contract not complying with any of the conditions of Article 299(1) of the Constitution is not binding on or enforceable by the Government , and is absolutely void , though not so for collateral purposes , and cannot be ratified. No damages can be claimed for breach unless the contract is complete under this article.

The provisions have been embodied to protect the general public as represented by the government. The terms of the Article have therefore been held to be mandatory and not merely directory. This means that a contract not couched in the particular form stipulated by Article 299(1) cannot be enforced at the instance of any of the contracting parties. Neither the government can be sued and held liable for the breach of such a contract nor can the government enforce such a contract against the other contracting party.

 For any query contact email:-Deepak Miglani( legalbuddy@milagrow.in)