Contractual Liability of the Administration in India | Important Acts and Laws for Judiciary Exams PDF Download

Contractual Liability in Indian Administration

Contractual liability of the administration in India pertains to situations where the government is a party to a contract. The Indian Constitution addresses this aspect by ensuring that the state acts within the confines of the law.

Government Contracts in Modern Times

In contemporary society, government contracts hold significant importance. As the primary source of wealth, the state's economic activities are expanding, leading to its role as a distributor of various benefits. These benefits, such as contracts, licenses, and quotas, are often considered privileges, with some having the characteristics of legal rights.

Regulating Government Discretion

A crucial aspect of contractual liability is to regulate and structure the discretion of the government when conferring benefits. This helps in ensuring that the government's powers are exercised responsibly and in accordance with legal provisions.

Understanding Contracts

According to Section 2(h) of the Indian Contract Act, 1872, a contract is defined as an agreement enforceable by law. This agreement involves promises that form considerations for each party involved. When either the central government or a state government is a party to a contract, it is termed as a government contract.

Contractual Liability of the Administration in Britain

Prior to 1947, under Common Law, individuals could not sue the Crown in court regarding contracts due to historical privileges. However, The Crown Proceedings Act, 1947 changed this scenario, allowing suits against the Crown to enforce contractual obligations.

Contractual Liability of the Administration in India

Formation of Contracts of the Administration

• Article 299(1) of the Constitution specifies conditions for the validity of contracts made under the executive power of the center or a state.
• Conditions include: (1) Contracts must be expressed to be made by the President/Governor, (2) Contracts must be executed on behalf of the President/Governor, and (3) Execution of contracts may be directed or authorized by the President/Governor.
• The term "executed" in Article 299(1) signifies that contracts between the government and any party must be in writing.
• The Supreme Court emphasized in K.P. Chowdhary v. State of Madhya Pradesh that there can be no implied contracts between the Government and another party under Article 299(1).
• It is crucial for a contract between the government and a private party to be expressed in the name of the President or the Governor for enforceability.
• The Supreme Court has stressed that government dealings with the public must be based on transparent and well-defined policies communicated to the public.

Ratification of Contracts by Administration

• Prior to 1968, it was believed that even though the government could not be sued on informal contracts, it could accept responsibility by ratifying them.
• In State of West Bengal v. B.K. Mondal, the Supreme Court noted that contracts not adhering to Article 299(1) are not inherently void and could potentially be ratified.