Government Contracts
Abstract
Contracts, as we know are legally binding promises, and once a legitimate contract is entered into, the parties are obligated to adhere to its terms and conditions. However, in a contract to which the government is a party, the government receives particular protection because it is claimed that such a ‘government contract’ involves public interest and funding.
The research paper deals with the history of the ‘government contract’ in India followed by an analysis of the formation and nature of the government contract and a discussion on the recommendations and remedies with the Judicial inroads of the Government Contract. Additionally, the paper also defines a few basic terms like ‘person and entity in the contract.
Introduction
With the advent of modern technology, the subject of government contracts has risen to prominence. Currently, the state serves as a source of wealth. In the modern period of a welfare state, the government’s economic operations are expanding, and the government is progressively taking on the role of the distributor of a wide range of benefits, which is a significant shift from previous generations. People and businesses alike are benefiting from government handouts such as contracts, licenses, quotas, mineral rights, and employment opportunities. This opens the door to the prospect of a government using its authority to distribute generosity in an arbitrarily determined manner. It is self-evident that the government or any of its agencies should not be permitted to act arbitrarily and confer benefits on anyone they want without due process. In order to preserve and control private interests in such wealth, it is necessary to adopt some standards that structure and discipline the government’s discretion to grant such advantages in the first place.
“A contract is a legally binding agreement that confers personal rights and imposes personal obligations on the parties to the agreement, which the law protects and enforces. The general law of contract is predicated on the notion that the parties have created legal rights and responsibilities that are solely personal in nature and may be enforced only by action against the defaulting party.” Government contract, as defined above, simply refers to any deal to which the federal or state government is a party. It makes no difference whether the government or an agency of the government is the promisor or the promisee.
Difference Between Contract And Government Contract?
- The essential ingredients of a general contract are offer, acceptance, legal capacity, absence of undue influence, consideration, etc. In case the contract is with the Union or States, their executive powers lie under Article 298 and Article 299 of the Constitution of India which states “the executive authority of the Union of India and its states to engage in commerce or business, acquire, keep, and dispose of property, and enter into contracts.”
Historical Background
- The power or authority of the Government of India to enter into contracts may be traced down from the advent of the East-India Company till the establishment of the Constitution of India after the Independence.
1. East India Company: -
The East India Company was vested with the administration of India’s territories and was empowered under the Charter to enter into contracts. When it was founded, it operated on a strictly commercial basis and lacked the authority to possess, acquire, or administer lands. The Company owned and gained portions of its territories inadvertently only when it conducted commercial operations in India. Because the Company governed the owned and acquired territories and even entered into contracts in its capacity as administrator of the aforementioned territories, the transactions cannot be referred to or defined as ‘Government Contracts.’ This is because the Company lacked any legal jurisdiction or capacity to own or acquire property.
2. The Government Of India Act, 1858:-
The Government of India Act, 1858, was enacted by the British Parliament in 1858. The East India Company’s Court of Directors and Board of Control were abolished with the passage of this Act. It surrendered to the Majesty all territories in the ownership or control of the East India Company, all powers exercisable in connection with them, and any territorial or other revenues derived from them. It conveyed all lands, stocks, products, and the benefit of all contracts to which the said Company would have been entitled at the commencement. On December 31, 1600, Queen Elizabeth granted the East India Company a charter. The Government of India Act, 1858 stated that India will be administered by and in the name of Majesty (Her). The most powerful and influential position was that of Secretary of State for India. In India, the administration was delegated to the Governor General in Council. The Secretary of State was accountable to Parliament for India’s affairs. Section XL of the Government of India Act, 1858 vested the Secretary of State in Council with the authority to engage in contracts, etc.
After obtaining a majority of votes at the meeting, the Secretary of State shall have the authority to sell and dispose of any Personal or Real Estate for the time being vested by the Majesty under this act. as may be deemed fit, or to raise money on such Real Estate by way of Mortgage, and to make the necessary assurances for that purpose, and to purchase and acquire any land or hereditaments, or any interests therein, Stores, Goods, and other property, and to enter into any Contracts, as may be deemed fit for the purposes of this Act, and all property so acquired shall vest in the Majesty for the services of the government.
India’s administration was unified in all respects. The Governor General of India in Council was entrusted with all authorities and powers for the administration of India, who was accountable to the Secretary of State for India. It was discovered that the Government of India Act, 1858, did not vest the Governor General of India or the Provincial Governors with the ability to enter into contracts. To remedy this lapse, a new Act was enacted, dubbed the Government of India Act, 1859. By enacting this Act, the Governor General of India in the Council, as well as the ruled provinces and other offices, gained the authority to make contracts. The authority was analogous to that granted to the Secretary of State for India in Council pursuant to the Government of India Act, l858. The Governor-General in Council, the Governor in Council of Fort St. George, the Governor in Council of Bombay, the Lieutenant Governor of the North Western Provinces now under the Presidency of Fort William in Bengal, or any officer for the time being entrusted with the Government, Charge, or Care of any Presidency, Province, or District in India, subject to such provisions or restrictions as the Secretary of State may prescribe. Additionally, the Act provided for the validity of any contracts carried into before the passage of the Government of India Act, 1858. The validating Section not only covered the period between the Government of India Act, 1858, and the present Act but also validated all contracts entered into by or on behalf of the East India Company before the commencement of the Government of India Act, 1858.
3. The Government Of India Act, 1915:-
- The Government of India Act, 1915, repealed sections 130 and 131 of the Government of India Acts, 1858 and 1859. The Section stated that “the Acts mentioned in the Fourth Schedule to this Act are hereby repealed; provided, however, that this repeal shall have no effect on.”
The validity of any contract made under any enactment is hereby replaced and in force at the commencement of this Act. Section 29 of this Act included parts of the Government of India Act, 1858, granting the Secretary of State in Council the authority to enter into contracts. Section 29 contained the following clause: The Secretary of State in Council may enter into any contract for the purposes of this Act with the agreement of a majority of votes cast at a meeting of the Council of India.
Contracts entered into according to this provision shall vest in the Secretary of State in Council for the time being.
Section 29 of the Government of India Act, 1915, added a provision that contracts, which under English Law must be made under seal if made by private individuals, should be made under the hand and seal of two members of the Council, and that the Secretary of State in Council must have a majority of the votes in his Council to make such contracts.
Section 30 (1) of the Government of India Act, 1913, conferred on the Governor-General in Council and any local government the authority to enter into contracts, comparable to the authority provided by Section I of the Government of India Act, 1839.
This Section put restrictions on the Governor-General in Council’s and local government’s exercise of the contracting power. It imposed two required conditions on contracting parties. The two conditions were that I the contract must expressly be formed in the name of the Secretary of State in Council and (ii) the contract must be made on his or her behalf. Additionally, the contract shall be enforceable against the Secretary of State in Council if it is implemented by the person and in the way ordered by the Governor-General in Council.
High Commissioner for India- The Government of India Act, 1915, authorized the Secretary of State for India in Council, who was stationed in the United Kingdom, to make several types of purchases for the Government of India’s civil and military purposes. Typically, the Secretary of State for India made such purchases in local marketplaces rather than in the lowest markets in other countries. This emphasis was on the domestic market, not on the best and most affordable products manufactured by manufacturers located outside the United Kingdom. This was done for two reasons: convenience, as the Secretary of State for India, was stationed in the United Kingdom, and to stimulate the British economy. Due to the fact that no rice purchases were made in India, Indian companies were deprived of the benefits associated with government purchases, which had a negative impact on the Indian economy. This instilled considerable hostility in Indian industries toward the British authority. The Government of India Act, 1915, was amended by the Government of India Act, 1919, to include a provision for the appointment of a High Commissioner in India. His appointment was made in Council by the Governor-General of India and he was stationed in London. Section 29A of the Government of India Act, 1919, enabled the High Commissioner in India to enter into contracts in order to carry out his legally obligated functions.
4. The Government Of India Act, 1935: -
Section 175 of the Government of India Act, 1935, established a provision governing the Government of India’s authority and that 17. Part I of Schedule II of the Government of India Act, 1919 inserted Section 29A. of Provinces:
Clause (I), “The executive authority of the federation shall sale, grant, dispose or mortgage any property in the jurisdiction of the government or federation, other than that any purchase or acquisitions of property or entering into the contracts on behalf of the Majesty.”
This clause authorized the Federation and the Provinces to enter into contracts for any purpose. Prior to the commencement of Part III of the Government of India Act, 1935, all contracts entered into by or on behalf of the Secretary of State in Council purely for the purpose of exercising the Crown’s functions in its relations with the Indian States became contracts of the Majesty. Section 175(3) of the Government of India Act, 1935, established certain requirements on the Federal Government’s or a Provincial Government’s use of executive authority to enter into contracts, notably
The contract must be expressed to be made by the Governor-General: or by the Governor of the Province, as the case may be,
Must be executed on behalf of the Governor-General or the Governor of the Province, as the case may be, and
- Must be executed by such person and in such manner as the Governor-General or Governor of the Province, may direct or otherwise.
This act continued the post of the High Commissioner for India, which was established by the Government of India Act 1919. The following is the text of Section 302 of the Government Act:-
The Governor-General shall designate a High Commissioner for India in the United Kingdom.
The High Commissioner shall conduct on behalf of the Federation such functions relating to the Federation’s business, including but not limited to contracting, as the Governor General may order from time to time.
5. The Constitution Of India:-
- On 26 January 1950, India’s Constitution came into force. The Constitution bestowed upon the Union of India and the States the right to make contracts, etc., a power identical to that specified in Section 175(1) of the Government of India Act, 1935. Article 298 gives the following:
The Executive authority of the Union and each State shall extend, subject to any law enacted by the appropriate legislature, to the grant, sale, disposition, or mortgage of any property held for the benefit of the Union or such State, respectively, and to the purchase or acquisition of property for those purposes, as well as to the making of contracts.
- Unless otherwise specified, any property acquired for the purposes of the Union or of a State shall vest in the Union or in the State in question, as the case may be.
Formation Of Government Contract
The subject of government contracts in India is introduced and detailed under Articles 298, 299, and 300 of the Constitution. As discussed previously, the Articles provide that the government may enter into contracts in order to carry out its functions. The Government may enter into a contract in the exercise of its executive powers pursuant to Article 298; thus, no legislative authority is required for this purpose. Additionally, Article 299 establishes necessary standards for contracts entered into in the exercise of the Centre’s or State’s executive power. Additionally, Article 300 sets forth the procedures for instituting claims and processes against or against the Government. However, because the mechanism for contract formation is not included in the Constitution, it is reinforced by the provisions of the Indian Contract Act, 1872. Thus, in order for a Government Contract to be legitimate, it must also satisfy the requirements of Section 10 of the Indian Contract Act, 1872, which deals with the elements of a valid contract. Similarly, Sections 73, 74, and 75 apply to Government Contracts. It is past time to reconsider how public law concepts apply to government contracting, not just because governments are entering into larger and more complex contracts, but also because those contracts may have national and international implications. Large-scale resource and infrastructure developments are obvious examples of situations in which developers’ contracts with the government can be extremely relevant domestically. Inevitably, the larger and more convoluted the contract, the more likely it will spark legal and political conflict. Additionally, if the developer is not an Indian firm, free trade agreements and other international accords frequently add a significant international dimension to the transaction.
Regarding the nature of government contracts, the court determined that they must be given a reasonable interpretation and found that contracts that were not in appropriate form might be ratified by governments. J. Bose observed: “We believe that the provisions of Article 299(1) of the Constitution were not added for the sake of form (but) to protect the government from unauthorized or excessive authority. It is appropriate that the government be protected.”
On the other side, a contracting officer can always protect himself by adhering to the correct form. Between these two extremes is a significant class of contracts, probably the largest in number, that, while authorized, are not in the appropriate form for one reason or another. It is only fair that an innocent contractual party does not suffer as a result of this, and where no other defect or objection exists, we have no doubt that the Government will always assume responsibility. Otherwise, its interests are protected. It would be heinous to believe that the thousands of Government authorities who are daily tasked with initiating a diverse range of agreements, frequently with minor characteristics and sometimes in an emergency, cannot agree orally or in writing and that each small agreement must be accompanied by a plethora of lawful papers vouched in a particular form. It is possible that the government will not be obligated by the contract in those circumstances, but that is not the same as stating that the contracts are meaningless. This simply means that the principal cannot be sued, but nothing precludes ratification under Section 230(3) of the Indian Contract Act, particularly if the contract is for the benefit of the government.
In Bhikraj Jaipuria Vs. Union of India, the Supreme Court declared that the criteria of Section 175(3) of the Government of India Act, 1935 must be carefully adhered to. Shah J. held that the Chaturbhuj case considered the contract in relation to the purpose of the Representation of People’s Act and that the case’s rationale does not support the argument that a contract entered into on behalf of a State that is not in accordance with Section 175(3) of the Government of India Act, 1935 (or Article 299(1) of the Constitution) is unenforceable against the State. In Laliteshwar Vs. Bateshwar Prasad ruled on October 10, 1965, that the Supreme Court determined that the respondent was not a contractor but a mere subcontractor, whilst minority Judges Shah and Hidaytullah J. determined that the respondent was a contractor. Article 299(1) of the Constitution was not used in this case.
The Court declined to extend the Chaturbhuj judgment, stating that the contract had not been ratified by the Government. The court noted: “If we hold that this form of transaction is covered, we would eliminate the term “contract” from Section 7(d) of the Representation of the People’s Act and replace it with the term “agreement.” Thus, an agreement entered into in violation of Article 299 and not ratified cannot be referred to as a “contract” within the meaning of Section 7(d) of the Representation of the People’s Act.”
The broad proposition is that a ‘contract’ that violates Article 299(1) is unenforceable against either the Government or the contracting party because no rights accrue to either party and no liability is committed by either.
As previously stated, in K.P. Chowdhary Vs. In the State of M.P., the Supreme Court rejected to infer a contract between the Government and the bidder, stating that Article 299(1) was written in mandatory words, precluding any implied contracts between the Government and another individual. In Bishandayal & Sons Vs. The state of Orissa, the Supreme Court emphasized that determining whether a contract complies with Article 299 of the Constitution is a combined question of law and fact. Additionally, that a contract that violates Article 299 is unenforceable in law, and the parties would be barred from obtaining specific performance of the contract.
Article 14 envisions an equal opportunity for everyone to obtain public assistance. The State, like any other contracting party, has the authority to determine with whom it may do business, but it may not do so arbitrarily. The executive power of the state comprises the authority to engage in any trade or business, to acquire, keep, and dispose of property, as well as the authority to enter into contracts for those purposes. Contracts are needed of the government for a variety of purposes. Personnel are employed to carry out government responsibilities contracts are not applicable because all government officials serve at the leisure of the president or governor, depending on whether they work for the Central Government or a State Government.
Government contracts, on the other hand, have a public nature, so public law is put on top of the law of contract. A government contract is different from a contract between two people for private reasons. It serves a public purpose. In a democracy, the people are in charge of the government. So, a government contract must be made in a certain way and only by people who have the authority to do so. Article 299 of the Indian Constitution says how these contracts should be done.
Essential Requirements of Government Contract: In State of Bihar Vs. M/s Kararn Ghand Thapar and Bros– In interpreting the criteria of Section 175(3) of the Government of India Act, 1935, the Supreme Court stated:
Under this section, a contract made by the Governor of a Province must meet three things. It must say that the Governor made it; it must be done; and it must be done by the people and in the way that the Governor wants.
As a result, reading Article 299 of the Constitution reveals that Article 299 establishes the following criteria and standards that must be met in contracts signed by or with the Union or State.
As a result, it establishes three conditions:-
- The contract must expressly state that it will be made by the President or the Governor of the State, whichever is applicable.
- The contract must be signed on the President’s or Governor’s behalf.
- Such contracts must be carried out by the people and in the way that the President or Governor directs or authorizes.
The President or the Governor of the State, as the case may be, must expressly make the contract:-
The first condition for a government contract is that it be stated, which can be done by the President or the Governor of the State, depending on the situation. As a result, this criterion is not only a suggestion but a mandate. The words, “executed” and “expressed to be made” make it clear that the formal written document is necessary for a Government Contract. As a result, if an oral contract exists, it is not binding on the government. As a result, under this Article, there can be no implied contract.
In Chaturbhuj Vithaldas Jasuni Vs. Moreshwar Parashram The Supreme Court said that the Constitutional provisions were not added just for the sake of appearance. They were added to protect the government from unauthorized contracts. If a person had a contract with the government that did not meet the form required by Article 299(1), did that person not qualify to be elected to the legislature? This was the question that came up in this case. This contract was signed by someone who was supposed to do this, but it wasn’t written in the name of the President. It was ruled by the court that the contract is void.
A similar view was expressed by the Supreme Court in Karamshi Jethabhai Vs. State of Bombay, where the appellant business entered into a contract with the Minister of the Public Works Department to irrigate the appellant’s land holdings. Following this, the Canal Officer, acting on government orders, annulled the agreements, with the key distinction being that all contracts must be written in the name of the Governor, who represents the State. A minister, or anybody else for that matter, could not bind the state unless Article 299(1) allowed it.
Further, in State of Madras v. R. Ranganathan Chettiar, the contract was inchoate and hence unenforceable, according to the High Court, due to a legislative stipulation requiring the formal signing of a deed. The regulation in this instance compelled the Government and the top bidder at the auction to enter into a written contract. Despite being the highest bidder and depositing the security deposit, the responder did not sign any legal documents. Later, when a lawsuit was brought against the government to prevent it from having another auction, which had become necessary due to public outcry, the court declined to comply, citing the lack of a legal contract. Patna High Court, on the other hand, has adopted a different stance in Chandra Bhan Vs the State of Bihar.
In Behari Lal Vs. Bhumi Devi, It didn’t meet the strict requirements of Article 299(1), but the Supreme Court said it did meet the rules set by Rajpramukh. In fact, because it was written on behalf of the Governor, it was not void.
The contract must be signed on behalf of the President or Governor, depending on the situation: Another important feature of a government contract is that it must be executed on behalf of the President of India or the Governor of the State, as the case may be; otherwise, the contract would be nullified. In other words, if such authority fails to sign on behalf of the Chief Executive for any reason, the contract would be void, since it falls within the category of mandatory requirements. When a contract with the government is in writing, it is said to have been “executed.”
However, this does not imply that there must always be a formal document between the government and the private individual for this reason. A legal contract can be formed by communication or offer and acceptance if the standards of Article 299(1) are met. The term “executed” does not imply the signing of a formal document in order to create a legally binding contract with the government. Thus, a tender for the purchase of goods in response to an invitation issued by or on behalf of the President or the Governor, and an acceptance in writing expressed to be made in the name of the President or the Governor (as the case may be) and executed on his behalf by a person authorized in that behalf, will be treated as a contract in accordance with Article 299(1) and thus will be a valid contract.
However, the harshness of this rule was relaxed by the court in Davecos Garment Factory Vs. In the state of Rajasthan, In the absence of any specified rule, if the competent authority signs the contract deed in its official role, the formality requirement of Article 299(1) is presumed to have been met. In this situation, the contract for the delivery of police uniforms was signed by the Inspector General of Police, who did not sign on behalf of the governor following his signing.
As with the exercise of wide executive power, this element is just a legal necessity. When a competent official signs a contract on behalf of the government, the question arises as to whether his failure to mention that he is signing on behalf of the Chief Executive should render the transaction null and void. Though it was decided in the Chaturbhuj Vithaldas case that this criterion was required for the validity of a contract, other rulings have rejected this position. The Supreme Court of India held in Union of India Vs. Rallia Ram that if the officer had the authority to enter into the contract and had signed it in his official capacity, the lack of a reference to the fact that he was doing so in the name of the Chief Executive would not render the contract void.
A person authorized by the President or the Governor, as the case may be, must sign the contract: The last need for a Government Contract to be legitimate is that it be performed on behalf of the Government by a person authorized for that purpose by the President or Governor, as the case may be. The contract shall be void if it is formed or signed by someone who is not authorized by the President or the Governor. The Government will not be bound by such a contract, and it will not be enforceable against it.
As a result, it is apparent that only an authorized individual may sign the Government Contract. It would be absolutely critical if the state was shielded from bogus claims based on unlawful contracts.
Because Article 299(1) does not specify a specific manner of authorization, the standard governmental practice of notifying the public through the official gazette may be regarded as sufficient authorization. The contract would be void if the necessary authority was not present.
To avoid the hardship which this requirement may entail, the Supreme Court held in State of Bihar Vs. Karam Chand Thapar. In the lack of any particular authorization, the court decided that implicit authorization might be regarded as significant compliance with Article 299(1). The plaintiff, in this case, signed a contract with the state of Bihar for the building of an airfield and other projects. Following some work, a disagreement emerged about the payment of some expenses. It was eventually decided to send the case to arbitration. The agreement was signed by the Executive Engineer and stated to have been made in the name of the Governor. The corporation filed a petition for a decree in terms of the award on the basis of the award. On behalf of the government, it was argued that the arbitration agreement was not signed by the sole authorized person, the Secretary to the Government for P.W.D. The corporation said that the Executive Engineer signed the paper after the Secretary gave him the appropriate instructions. The whole communication and negotiating process revealed that the secretary was present at all times, and the court concluded that the Executive Officer was impliedly approved on an ad hoc basis, even if he was not formally permitted. In Bhikaraj Jaipuria Vs. Union of India, the Supreme Court took a similar stance.
Principles underlying Government Contract: In the event of a government contract, there are specific rules that must be followed. The following principles are discussed:
Ratification: In terms of ratification, it is conceivable for a person on whose behalf an agent acts without authorization to approve that act in order to bestow power ex post facto under the basic concept of contract law. The question is whether the government can ratify an agreement that does not meet the standards of Article 299(1). In terms of ratification, it is conceivable for a person on whose behalf an agent acts without authorization to approve that act in order to bestow power ex post facto under broad principles of contract law.
Reasonableness and Fair Play: In government contracts, the government’s behavior must be just and reasonable. “Fair play” literally means “just, equitable, devoid of suspicion, unbiased, honest, even-handed, equal, etc.” It entails the fundamental right “to be treated with the same respect and care as everyone else.” When an administrative authority exercises its powers, it must do so in a reasonable manner. It is inconceivable that in a democracy based on the rule of law, the official government or any of its employees could have discretionary authority over a person’s interests.
Equality and Non-Arbitrariness: Article 14 of the Indian Constitution states that no one should be denied equality before the law or equal protection under the law within India’s borders. Administrative authorities shall not discriminate on any basis when awarding contracts or conducting auctions or tenders. In Mahabir Auto Stores Vs. Indian Oil Corp, It has been established that while exercising executive power, the State or an instrumentality of the State must give reasons for every action taken, otherwise those acts may be challenged as arbitrary in procedures under Articles 226 and 32 of the Constitution.
Positive equality, often known as affirmative action, is a modern development in the equality concept. In a number of rulings, the court has highlighted that equality is a positive right that compels the state to reduce existing disparities and treat unequal or disadvantaged people differently from others, as the Constitution mandates.
Public Interest: The third criteria that the public authority must uphold is the public interest. The public interest and welfare of the people should be the driving force behind each act of official power. Every action taken by a public authority or a person working in the public interest, as well as any activity that has a public component, should be directed by the public interest. It must be demonstrated that the action taken by the government was not against the public interest. A public authority must use its power in the public’s best interests and well-being. Every action taken by a public authority or a person working in the public interest, as well as every act that has a public component, should be directed by the public interest. If an activity has a public law aspect or a public character, it is subject to judicial scrutiny, and the legality of the action is tried on the anvil of Article 14. The distinction between public and private law remedies is becoming increasingly blurred. Anything that appears to be biased, jobbery, or nepotism should be avoided. A person in a position of public trust must use his or her authority in the public interest and for the greater benefit.
Whether The Term ‘Person’ Includes ‘Government’?
- The fundamental issue is whether the Union of India or a State can be recognized as a ‘person’ and subject to the common law. The Indian Constitution endows the Union of India and the States with the features, but does not define the term ‘government.’ Article 367 of the Constitution provides that the Constitution is subject to the definitions established in the General Clauses Act, 1897. Additionally, Section 3(23) of the General Clauses Act does not define the term ‘government’. Again, the General Clauses Act states in Section 3(8): that the Central Government shall
- Refers to anything done prior to the commencement of the Constitution, to the Governor-General or Governor-General in Council, as the case may be.
- And anything done after the adoption of the Constitution will be referred to the President.
According to Article 52 of the Constitution, India shall have a President. Article 53(1) states that the President has executive authority over the Union and that he may use it himself or through an officer subordinate to him in accordance with the Constitution. Any exercise of the power that is not according to the Constitution is subject to revocation. Article 295 of the Constitution makes an explicit reference to the Union of India’s and the States’ contractual rights, responsibilities, and obligations. Initially, there was a dispute about whether the Union of India and its states could be considered legal persons capable of entering into contracts in their own names or not. The Allahabad High Court held that the term “government” is included in Section 3(42) of the General Clauses Act.
The Court determined that the Contract is an agreement between a promiser and a promisee. Each promiser and promisee are a person under Section 2 of the Contract Act. Additionally, it stated that a contract is an agreement between parties who are ‘persons’ under the Contract Act. The Contract Act’s purpose demands that the term ‘person’ have a broad definition, which includes the State Government. However, the Punjab High Court held that the natural and obvious meaning of the term ‘person’ is a living human being, whether a male, woman, or kid, who is a member of the human race. In law, the term “person” refers to natural persons and artificial persons such as corporations and joint stock companies, but not to a state or government, despite the fact that a state is a moral person capable of possessing and gaining rights, as well as directing and fulfilling obligations. Additionally, the Court held that the government cannot be classified as a ‘person’ because, in popular language, the government is synonymous with the state. Additionally, the Court stated that a state is a country of people, but a government is a political entity through which the state operates. On the other hand, the Rajasthan High Court held that the government is included in the definition of ‘person’ under Section 3(34) of the General Clauses Act, 1945, which is comparable to the definition of ‘person’ under Section 3(42) of the General Clauses Act, 1897. But the Punjab High Court once again rejected the argument that the term ‘person’ encompasses the government.
The Supreme Court, however, resolved the issue in State of Punjab v. O.G.B. Syndicate Ltd, where the Court stated: “It would not be correct to assert that the State is not a constitutional or even a juristic entity simply because it lacks the characteristics of or fully satisfies the definition of a corporation. The state is a structured political institution that possesses several of the characteristics of a corporation. Article 300 of the Constitution empowers the Union and State Governments to sue and be sued in the name of the Union of India and the State Government, respectively. As a result, it would not be incorrect to refer to the Union and the States as Constitutional entities with characteristics prescribed by the Constitution.”
Judicial Frame For Executive Necessity
- While an individual may disregard contractual obligations at his or her danger, the government may do so with impunity on the grounds of “executive necessity.” Executive necessity is the principle that, while the government can be bound by commercial contracts through its officers and, like anyone else, is liable for damages, the government lacks the authority to constrain future executive action, which must be determined by the community’s needs when the issue arises. Thus, the doctrine’s essential is that government cannot impair Parliament’s future acts in subjects affecting the welfare of the state, which is sovereign and governs through its executive agencies—the government—and its sovereign powers. These are fundamental rights that transcend local rules. The eminent domain is a necessary component of sovereignty. It is unaffected by contract law. Though the government is controlled by contract law, in exceptional circumstances, the government may repudiate a contract without incurring any unfavourable effects if it is necessary to carry out its executive functions. This is referred to as executive necessity. Contractual commitments cannot stifle the government’s discretion in executive decisions, it has been determined. Sovereignty is demonstrated by the exercise of eminent domain, which is manifested in executive need. While the presence of executive need is well established, the constraints within which it operates are neither definite nor firm. Amphirite is the most well-known example in this category. The owners of the Amphitrite, a Swedish ship, had received an undertaking from the British legation in Stockholm before to shipping her to England in March 1918 that the ship would earn its own release if she carried a load of at least 60% permitted commodities. This was counter to the British Government’s customary practise, yet without it, it seems clear that the ship would not have sailed for England. Following a successful voyage on which the undertaking was fulfilled, a second voyage from Sweden to England was performed, but only after an express repetition of the previous promise. However, on this occasion, the British Government refused to grant permission from a British port unless a deal was reached with the Swedish maritime committee. The owners, however, were disentitled to apply to that committee because the ship had previously traded with Germany. As a result, the ship was detained and finally sold because no release could be secured despite the assurance given. Thus, the applicants asserted contract enforcement against the Crown, and the courts determined that no damages could be paid. However, it would be incorrect to assert that the judiciary has always sided with the government. As Denning J observed in Robertson v Minister of Pensions, “the Crown cannot escape by asserting that estoppels do not bind the Crown, as that notion has been thoroughly debunked.” Nor can the Crown escape by advancing the notion of executive necessity, which is the doctrine that the crown’s executive action cannot be restrained.” In India, this issue arose in the Indo Afgan case, in which the Supreme Court stated: “We are unable to accept the position that executive need absolves the Government of upholding its solemn pledges upon which citizens have acted in their own self-interest.” Executive necessity was rejected in the case of M/s Sterling Comp Ltd v M/s M&N Publication, when the court determined that the defence of executive necessity cannot be utilised extensively. Thus, executive need may serve as a defence to contractual obligation enforcement. Additionally, it can be used as a weapon of offence to void contracts. However, in both circumstances, the Government is required to provide the court with facts justifying the existence of the plea. Judges have attempted to limit the doctrine’s application in light of the circumstances, but because the limitations lack specificity, the theory is malleable to some extent, although the fundamental core stays consistent.
Open Competitive Bidding As The Default Procurement Method
The amended Public Procurement Bill, 2012 (the PP Bill) places a far stronger emphasis on transparency, competition, fair play, and integrity. Open competition bidding is advocated as the default approach for competitive procurement and, presumably, for framework agreements (rate contracts), but limited competitive bidding may be another option for procuring entities seeking to join such frameworks. Additionally, the PP Bill requires the inclusion of tender assessment criteria in bidding documents distributed to prospective bidders and enables specification changes mid-stream during the pre-bid/contract award stage only on a level-playing field basis. It establishes a Code of Integrity to be applied to bidders by procuring entities, including the potential debarment of erring contractors for violation, although the grounds for debarring bidders by the Central Government appear to be much narrower than the grounds for debarring such culpable contractors by individual procuring offices.
An Effective Right To Information On Public Procurement
- Additionally, the Right to Information Act, of 2005 has significantly increased the availability of information on procurement contracts and PPP concessions. The Central Information Commission (CIC) issued significant orders in this regard as early as 2009 in the Shri Navroz Modi Vs. Mumbai Port Trust Case, which mandated disclosure of PPP concessions on the grounds of greater public interest. Although the adversely affected parties quickly challenged these orders, the Government of India has now made disclosure of certain information about concession agreements mandatory, in response to the recommendations of an RTI Act Task Force on Suo Moto Disclosure. As a result of these recent orders, virtually all significant aspects of public procurement decisions, including details such as Project Reports, Fees & Tolls, Concession Agreements, and the Selection Process, must now be disclosed mandatorily and proactively by government departments and other public entities awarding such contracts and concessions.
Recommendations
Streamlining Integrity Pacts Frameworks- Despite numerous advances to the integrity of government contracts in India, certain issues continue to require additional clarification, both substantively and procedurally. For example, while the Government has now made Integrity Pacts (IPs) universally applicable to all procurement actions by government entities and all Central Public Sector Enterprises, a number of inconsistencies remain in the IP framework on a number of counts both internally on issues such as IP extension to subcontracts, as well as externally on conflicts with independent guidance issued by other regulatory institutions, such as differences in the Central Vigilance Commission (CVC).
Improvement in Debarment Process- In India, the debarment and suspension system, often referred to as blacklisting, has a similar degree of complexity and inconsistency among the numerous institutional guidelines on the subject. Numerous critical features of debarment and suspension, such as their scope, ramifications, grounds, procedures, and agency-wide repercussions, remain controversial, and guidance differs greatly depending on the particular institution giving such executive guidance. On this matter, the Comptroller and Auditor General of India (CAG) recently made an interesting statement on contracting with commercial companies under criminal investigation, from which the CAG drew various undesirable inferences. At first glance, the CAG remarks appear to contradict existing departmental directives and even significant judicial rulings made by India’s higher courts.
Treatment of Unsolicited Proposals- Unsolicited proposals as an appropriate manner of contracting has been one of the most contentious methods of contracting, both from a transparency and competitiveness standpoint, as well as from an integrity standpoint. While they have historically been disfavoured in Central Government procurements in India, their use in state PPP contracts and infrastructure concessions has increased26. For the first time, the Supreme Court of India established criteria for unsolicited proposals in 2009, stating that such approaches were admissible subject to strict adherence to specified minimal competition and fair play principles. Unsolicited proposals have since been included in the draught National PPP Policy28 and Rules for use only in exceptional circumstances in conjunction with competitive dialogue, but not in the Public Procurement Bill, 2012; thus, the latter position may be viewed as a significant positive development for preserving the integrity of PPP contracts.
Contract Award Following L-1 Bidders’ Withdrawal- Another contentious element in the Public Procurement Bill, 2012 concerns the granting of contracts to L-2 bidders following the withdrawal of the L-1 bidder’s bid. This new plan departs significantly from long-standing CVC directives on the matter, which require that procurement procedures be restarted upon the withdrawal of such L-1 bids. To the extent that the Bill appears to contain provisions ostensibly allowing procuring entities to award contracts to L-2 bidders at L-2 prices, subject to self-certification by procuring entities regarding the procurement’s essentiality and integrity, this new change could potentially result in increased difficulties ensuring the integrity of government contract awards.
Post-Contract Renegotiations- Additionally, the Indian regulatory landscape has seen an increase in the possibility of ongoing contract renegotiations, which contrasts significantly with international best practices in this area, particularly in Latin America, where contract design and award processes are being reworked to minimize the potential for contract negotiations and associated integrity abuses. Contrary to international best practices, India has seen an increased willingness among some of its regulators to allow tariff increases in excess of what was contracted for, effectively allowing for continuous post-contract negotiations for foreseeable events; (ii) business risks factored in by bidders; and (iii) against fixed price agreements. In some significant situations, the regulator exercised its tariff change authority without informing or providing impacted customers with an opportunity to object. Such regulatory aggressiveness may result in an increase in strategic misrepresentation and opportunism on the part of unscrupulous concessionaires in India, as has already occurred in a number of other jurisdictions. This, in turn, may increase the risk of integrity violations as a result of a deficient post-contract renegotiations structure, which is susceptible to regulatory capture and multiple injunctive interventions, while severely impairing the government contracting party’s bargaining powers.
Conclusion
- The paper sums up the ‘Government Contracts’, stating its long-drawn history, and the procedures required in its formation. A Government contract is similar to an ordinary contract, except that one of the parties is the Central or State Government, and in addition to the requirements of the Indian Contract Act 1872, the stipulations of Article 299 of the Indian Constitution must be observed, or the contract will be void. It is clear that when it comes to government contracts, the essential requirements set forth in Article 299(1) must be met; otherwise, the government cannot be held liable. Without the aforementioned criteria, a contract would be null and void. As discussed previously, the provisions of Article 299(1) are mandatory; thus, the question arises: if a government contract is void for failing to comply with the requirements of Article 299(1) and cannot be ratified, can the party invoke Section 70, 230(iii), or 235 of the Indian Contract Act, 1872. However, Section 70’s application presents a few difficulties. In K.P Choudhary vs. Madhya Pradesh, it was found that no implied contract could exist between the government and its citizens. The Supreme Court concluded in New Marine Coal Co. vs. Union of India that the government must compensate for coal supplied that it has consumed, even if the contract does not comply with Article 299 of the Constitution. Therefore, if a person performs services for the government under an illegal contract without performing them gratuitously and the government derives any advantage from it, the government is obligated to compensate the individual. Where the executive engineer signed the letter of acceptance but not the governor, the contract was declared unlawful.
Top 13 Interesting Facts About Government Contracts
The difference between a Contract and a Government Contract is that apart from the Indian Contract Acts, 1872 while entering into the contract with the Government the provisions of Articles 298 and 299 must be abided.
The first approach of forming a uniform law for entering into a contract with the Executive Authority in India came up at the time of the East India Company, after the Charter of 1600.
The Charter of 1600, though gave the power to the East India Company to enter into the contract being an Executive Authority but this couldn’t be said as a perfect Government Contract because the company lacked any legal jurisdiction or capacity to own or acquire property.
Article 298 of the Indian Constitution lays the powers to the Government of India to enter into a contract with any Lawful Parties in the exercise of its executive powers and no further legislation authority is required for this purpose.
Article 299 establishes necessary standards or provisions for contracts entered into in the exercise of the Centre’s or State’s executive power.
Article 300 sets forth the procedures for instituting claims and processes against or against the Government.
Article 300 of the Constitution empowers the Union and State Governments to sue and be sued in the name of the Union of India and the State Government, respectively.
The concept of ‘Judicial Framework for Executive Necessity’ protects the Government from getting restricted from entering into future contracts in case of breach of contract from their side.
The Government Contract must be expressed by or on behalf of the President or the Governor of the State.
The main purpose of any Government Contract is Public Welfare.
The Contract between the Party and the Government will turn void if in case any provision of Article 299 is not abided during the contract.
Government Contracts are not an Implied kind of contract, they must be of Expressed Nature.
The Indian Constitution laid down the almost identical provisions of Section 175 of the Government of India Act, 1935, while deciding upon the powers of the Executive Authorities to enter into trade.
Siddhant Kumar
Writer
13angle
