Government Contracts

A Government Contract, as the name suggests, refers to a contract in which one of the parties to the contract is the state or the central government. The contractual liability of the Union and the states of India has been defined in Article 298 of the Indian Constitution which clearly states that the executive power of the union and the states extends to the making of contracts for any purpose.

The Indian Contract Act, 1872 that governs the contracts in India does not that provide for any specific way of entering into contracts. The contracts can be made by an oral or written agreement. However, the government contracts i.e. the contracts entered into by state or central government in India have to fulfil certain requirements as provided under Article 299 of the Indian Constitution. The Article 299 requires that all the contracts made in exercise of the executive power of the union or a state shall be expressly made and executed in the name of President or Governor of the State. However, the Article clearly states that neither the President nor the Governor shall be personally liable in respect of the contract.

The Hon’ble Supreme Court in the case of Bhikaraj Jaipuria vs. Union of India[1] stated that the provisions under Article 299 aim at protecting the government from entering into unauthorized contracts and thus, are not merely directory but mandatory in nature and contracts made in contravention shall be nullified i.e. declared void. Further, in the case of K. P. Chowdhury vs. State of Madhya Pradesh[2], the Hon’ble Court has held that a government contract cannot be entered into in an implied manner. The action of state and its instruments have to be remain just, fair and reasonable while entering into contracts and are thus, tested under the provisions of Article 14 of the Indian Constitution. Additionally, the contracts entered into by the union or any state are subject to a judicial review in case the state acts in an unfair and discriminatory manner.

[1] AIR 1962 SC 113

[2] AIR 1967 SC 203