PROJECT ON

“Critical analysis of Contractual & Non Contractual

Liability of Government”
SUBMITTED TO-

Prof- NAVJOT KAUR

SUBMITTED BY – TRUPTI TUKARAM JATHAR

ID NO. –

[LLB I Year – 2022-2023]

KLE COLLEGE OF LAW,

NAVI MUMBAI

1
ABSTRACT
This paper talks about contractual liability and non-contractual liability of the government This paper talks about the
Origin and Evolution of contractual and non-contractual liability. Thereafter it talks about application of the doctrine
to the Constitution. Then it talks about the landmark judgements based on the contractual and non-contractual
liability. After that this research also provides an analysis of the contractual and non-contractual liability and at the
end of the article it has the conclusion. Chapter XII Part III of the Constitution deals with the Government
Contracts, its liabilities, properties, obligations etc. The provisions relevant to government contracts are Article 298
and Article 299 of Indian Constitution. we are going to discuss here is liability of government when their servants
are involved in Tort. When officer during his duty cause some harm to you, can you get a compensation from
government? Or do you need to file for compensation against Officer? Up to what extent government is responsible?
Is Government responsible everywhere. 

Key words: - Contractual liability, Non-contractual liability, Tortuous liability, Liability of Government.

INTRODUCTION

Contract desirably marks the first overt action taken by parties which brings the parties under an obligation to
perform such act. An agreement gets a legal validity only if it is written down as a contract. Though a contract can
be written or oral, it is always desirable to have a written contract to avoid any misunderstandings in future. All the
contracts are regulated and governed under Indian Contract Act, 1872. Section 2(h) clearly states that a contract is
an agreement which is enforceable by law1. The Act entails all the essentials of how a contract should be formed and
what are the essentials 2and capacity of parties entering into a contract. Such is the importance of entering into a
valid legal contract as all the disputes shall be resolved only in accordance with the terms and conditions laid down
in the contract.
Tortious liability of the administration is dealt in Article 300 of the Indian Constitution. An overview of Article 300
provides that first part of the Article relates to the way in which suits and proceedings by or against Government
may be instituted. It enacts that a State may sue and be sued by the name of the Union of India a State may sue and
be sued by the name of the State. The Second part provides, inter alia, that the Union of India or a State may sue or
be sued if relation to its affairs in cases on the same line as that of Dominion of India or a corresponding Indian State
as the case may be, might have sued or been sued of the Constitution had not been enacted. The Third part provides
that it would be competent to the Parliament or the legislature of State to make appropriate provisions in regard to
the topic covered by Article 300(1).

1
Indian Contract Act, S.2(h), 1872.
2
Indian Contract Act, S. 10, 1872.

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Contractual liability of the Government

Government’s executive power extends to carrying on any trade, business, acquiring, holding and disposing any
property for public welfare. This requires Government to enter into contract in 00various situations.
Government’s power to make contract (power to carry on trade, etc.) is contained in Article 298 of the constitution
of India.
Article 299 (1)3 lays down the mode in which Government Contract have to be made. It prescribed a special
formality for contract in order to be binding upon the Government of India or Government of state, as the case may
be. It lays down that-
“All contract made in the exercise of the executive power of the union or of a state, shall be expressed to made by
the president, or by the government of state, as the case may be, and all such contract and all assurance of property
made in the exercise of that power, shall be executed on behalf of the president or Governor by such persons and in
such manner as he may direct or authorize”.
Thus, Article 299 lays down the formality which must be compiled with in order to bind the Government with
contractual liability. However, the substantive law of government contract is not laid down by the constitution or
statutes.
From the above, it is to be noted that, the contract made by or with the union or state Government must fulfil the
following requirements-
i) All such contract must be expressed to be made by president or the Government as the case may be;
ii) All such contracts are to be executed by such person in such manner as the president or the Governor
any direct or authorize; and
iii) All such contract made in exercise of the executive power are to be executed on behalf of the president
or the governor as the case may be
iv) All such contracts must be in writing.
v) All such contracts must be entered into by a person authorized for that purpose by the President or the
Governor as the case may be. If it is signed by an officer who is not authorized by the President or
Governor, the said contract is not binding on the government and it cannot be enforced against it –
Union of India vs. N. K Private Ltd. (AIR 1972 S.C. 915), 4 In the case, the Director was authorized to
enter into a contract on behalf of the President, The contract was entered into by the secretary, Railway
Board. The Supreme Court held that, the contract was entered into by an officer not authorized for the
said purpose and it was not a valid and binding contract.

Article 299 (2) 5provider that, neither the president, nor the Governor shall be personally liable in respect of any
contract executed for the purpose of the constitution or for the purpose of any enactment relating to the government
of India.
It also immunes a person making or executive (a person authorized for that purpose by the President or the
Governor) any such contract on behalf of the president or governor from personal liability.
The doctrine of necessity recognized under Common law is also applied in India to some extent-
i) A contract that fetters of executive action or legislative authority is not binding on the Government.
ii) A contract that fetters freedom of legislative authority is not binding on the government.
iii) Right to prosecute cannot be barred by contract.

3
The Constitution of India, Article 299, 1949.
4
Union of India vs. N. K Private Ltd. (AIR 1972 S.C. 915)
5
The Constitution of India, Art. 299(2), 1949.

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 iv) Statutory power vested in public authority cannot be bartered away by entering into contract not to
exercise it. Such administration agreement would be invalid.

In making contract, Government must satisfy the test of

i) Reasonableness (Article 19);
ii) Public interest (Article 19);
Acceptance or rejection of tender must comply with Article 14 of the Constitutions. Of India.
Estoppel:
The basic principle of estoppel is
that, a person (officer) who by some false statement or assurance, cause another (private individual) to act to his
detriment in reliance of the truth of it, is not allowed to deny it later, even though it is false. This principle of
estoppel does not bind the government for contract entered into by its’ officers.
According to Article 299 of the Constitution of India, the government contract is required to be formal and strictly in
according with the provision of Article 299. If, in absence of such formal contract a person acts on the assurance
given by the officer on behalf of the government; is the government bound by the assurance given on its behalf by
its officer?
The traditional view has been that, the Government is not bound by the advice, representation or assurance made by
an officer on its, behalf, if the officer has acted ultra vires.
Thus, a contract which is void for non- compliance with Article 299 (1) cannot be enforced against the government
on the footing of representation made by the officer of the Government. This is to protect the Government from
clandestine or irresponsible act of its servants, officers.
Article 299(1) lays down the mode in which Government Contract have to be made. It prescribes a special formality
for contract in order to be binding upon the Government of India or government of a state, as the case may be. In
other words, the contracts with the Government should not be made in any other manner, then as prescribed under
Article 299. Therefore, on estoppel can be raised against the government in case of non- compliance with such a
provision.

Waiver:
If a person waives his right to sue the government, he cannot claim or enforce his right at a later stage. However,
principle of wavier can be made applicable only when, the person concerned knows about his right and then waives
the same. Thus, waiver involves-
i) Voluntary or intentional abandonment of a known existing legal right.
ii) Waiver may be express or implied by conduct.
iii) In order to apply waiver, the parties thereto must apply their minds to the subject- matter of what was
to be waived
iv) The waiver must be ‘an intentional act with knowledge”
v) There can be no waiver unless the person concerned is fully informed as to his right, and with full
knowledge of such right, he intentionally abandons it.

The Supreme Court in Associated Hotels Indian Ltd. Vs. S.B. Sardar, AIR 1968, S.C. 933, 6 observed that “ A
wavier is an intentional relinquishment of known right. There can be no waiver unless the person against whom
waiver is claimed had full knowledge of his right and fact enabling him to effectual action for the enforcement of
such rights”.

6
Associated Hotels Indian Ltd. Vs. S.B. Sardar, AIR 1968, S.C. 933.

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Superintendent of Taxes vs. O.N. Truest, AIR. 1975, S.C. 2065-
In case, the petitioners obtained from the High Court an interim orders staying all tax proceedings against them on
the ground of the invalidity of the Act. Thereafter, the validity of the act was upheld by the Supreme Court. In the
meantime, the statutory time-limit for issuing notice for initiating assessment proceedings had expired. It was
contended by the Government that the petitioner should be deemed to have waived their right to receive notices
within the said time-limit by their conduct in obtaining the stay order from the High Court. The Supreme Court did
not accept this contention of the Government.

Government’s Privileges in Legal Proceedings-

The Government has certain privileges under the law of procedure as regard action brought against it.
They are as under-
I) Section 80 of Civil Procedure Code provide that, no suit can be brought against the Government unless
wo months’ notice is given before institution of suit.
II) Section 82 similar privilege to the government or a public officer as a judgment debtor. A decree
against the government or a public officer when an act is purported to be done in their official capacity.
a) It has not been satisfied within the time to be specified in the decree in this behalf; or
b) Where no time is specified in the decree, three months have elapsed since the date of the decree
III) Section 378 of the Criminal Procedure Code, 1973 gives a right to the Government to appeal from an
acquittal, Whereas,
Such a right is not available to a private complainant.
Government’s Privilege to Secrecy- State secrets, Public Interest, Right to Information-
The government enjoys the privilege of withholding the disclosure of document in court if such disclosure is likely
to jeopardise public interest. In the matters, such as national defense, diplomacy, foreign affairs, decisions of the
cabinet and investigation of crime, the privilege to withhold disclosure of documents become necessary.
It is to be noted here that, right to information is required for people’s participation in the democratic process and
also for the due process of law.
The Supreme Court in India Express Newspaper (p) Ltd. Vs Union of India, (AIR 1986, S.C. 515),7
Held that, right to information is part of the right to freedom of speech and expression.
Non Contractual or Tortuous Liability
The state is the legal entity and not a living entity, it has to act through human agency, i.e. through its servants. The
liability of the state for the tort of its servant is a vicarious liability. Therefore, the state can be held vicariously liable
for the wrong committed by its’ servants.
The liability of the state can be summarized under the English law and the Indian law as follow-
Under the English Law-
In English law the maxim “Rex Non Potest Peceare” had an important place with regard to the liability of the king
for the torte committed by its servant while carrying out their duties. The maxim means, “the king can do no
wrong”. In view of the meaning of this maxim, the king was neither subjected to any action nor the king could be
sued for the torts one by his servants.

7
India Express Newspaper (p) Ltd. Vs Union of India, (AIR 1986, S.C. 515)

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The maxim should not be understood to mean that, the king is above the law or the king is lawful in his action, but it
means that, since the ‘Crown” was created for the welfare of its subjects it cannot commit any injury to its subjects/
peoples. The Crown Proceeding Act,1947 and the Law Reforms (Personal Injuries 0 Act, 1948 brought the “Crown”
to the same level as the private person. The doctrine of the maxim that “King can do no wrong” stands abolished and
now the King/ Crown are made liable like a private individual in the same manner as the private employer is liable
for the tort of his servants or as the occupier is liable with regard to his premises.
In English Law, no action could lie against the sovereign in accordance with the doctrine “the King can do no
wrong”. The Crown could not be sued for the torts of its servant. The doctrine has now been practically abolished by
the Crown Proceedings Act,1947.
After the passing of the Act, the Crown can be made liable like a private Person;
i) Where a private employer would have been liable for the torts of his servants to a third person;
ii) Where a private employer would have been liable to his employees;
iii) Where an occupier would have been liable with regards to his premises.

Under the Indian Law;

An individual can avail of certain extraordinary remedies against the illegal actions of the administration by
invoking the writ jurisdiction of Supreme Court under Article 32 8and the High Court under Article 226 9 of the
Constitution of India. In addition to these remedies, there are other civil remedies available to a person, such as,
injunction and declaratory order. The law relating to injunctions. And declaratory orders is contained in sections 36
to 42 of the “specific Relief Act, 1963.
These remedies help in preventing the recurrence of administration illegality. However, they do not provide full
redress to the aggrieved individual. He may, in addition, have to resort to the remedies available to him under the
ordinary law, such as a suit for damages for the loss incurred due to the tortuous act of the state or its employees; or
for the loss suffered due to breach of contract by the state, for example, a person held in illegal detention may be
released by the writ of habeas corpus. Further, he may prosecute the state employees for wrongful confinement or
bring an action against them for the tort of false imprisonment.
But, it may be noted here, the private citizen’s access to the ordinary court and the ordinary remedies may be
qualified by the existence of certain privileges and immunities enjoyed by the state (i.e. act of state).
Act of state:
An act of the state is a good defence in an action in tort. An act of the state is an act on behalf of the Government in
the exercise of the sovereign power of state. It is done toward an alien (a person who was not its subject) as a matter
of policy
The act of the state, in order to become good defence, must have following ingredients-
i) It must be done against alien;
ii) It must have been done on behalf of the government;
iii) It must be authorized or subsequently ratified by the government;
iv) It must have been done as a matter of state policy.

8
Constitution of India Article 32.
9
Constitution of India Article 226.

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The English law relating to act of the state was followed in India, and has been followed after the Constitution as it
became a part of the common law of India constitution by the Constitution as existing law; state of Gujarat vs Vora
Fiddali, AIR 1964 SC 1043.10
In Secretary of state for India in Council vs Kamachi Boye Sahiba, 1859 11, the Tanjore Raj which was an
independent state, and its properties were taken possession of by the East India Company on behalf of the Crown
declaration that the Raj lapsed on the British Government on the Raj dying issueless. In a suit filed by the widow,
the privy council held that, this was an act of state and was not open to ant challenge.
The privy Council had also ruled that the acquisition of territory belonging to another state, whatever be the mode of
acquisition (though arbitrary) is an act of state and the inhabitants of that territory can avail of only such right as
against the new sovereign which the new sovereign as recognized; vajesingh joravarsinghji Vs. Secretary of state
AIR 1924 PC 216.12
In Indian Law, the liability of the state for the torts of its’ servant has been focused under Article 300 of the
Constitution of India. This Article provides that the Government of India or the Government of state may sue or they
may be sued.
Under Article 300 of the Constitution, the Government of India or the Government of state may sue or they may be
sued in same manner as the dominion of India and the corresponding Provinces in British India before the
commencement of the Constitution.
The law on this point, prior to the commencement of the constitution is to be found in the decision of an old case
viz.-
Peninsular and Oriental Steam Navigation Co. Vs The Secretary of state for India in Council (1861) 5 Bom. HCR
App 1:13in this case it has held that, the East India Co. Could be sued for the Torts of its’ servants in less they were
committed while performing the sovereign functions of the state.
In this case, a servant of the plaintiff company was taking a horse drive carriage belonging to the company. while
the carriage was passing near the Government Dockyard, certain workmen employed by the government,
negligently dropped an iron piece on the road. the horse was startled and one of them was injured. The plaintiff
company filed a suit against the defendant and claimed damages. The defendant claimed immunity of the crown and
contended that the action was not maintainable. The High Court of Calcutta held that the Action against the
defendant was maintainable and the court awarded damages to the plaintiff.
Justice Peacock says “There is a great and clear distinction between acts n the exercise of what are usually termed
‘Sovereign Power’ and act done in the conduct of undertakings which might be carried on by private individual
without having power delegated to them”
‘But where an act is done, or a contract is entered into in the exercise of power, usually called sovereign power, by
which we mean, power which cannot be lawfully exercise expect by a sovereign, or if power is delegated by a
sovereign to private individual to exercise that power, on action will lie”.
The principle which emerged is that if the function involved is sovereign function, the state cannot be held liable in
tort. But, if it is non- sovereign function, the state will be held liable. It is also stated that if the act in question is
statutory, it may be regarded as a sovereign function, but if the act in question is non-statutory, it is regarded as a
non-sovereign function

10
Gujarat vs Vora Fiddali, AIR 1964 SC 1043
11
Secretary of state for India in Council vs Kamachi Boye Sahiba, 1859.
12
vajesingh joravarsinghji Vs. Secretary of state AIR 1924 PC 216.

13
Peninsular and Oriental Steam Navigation Co. Vs The Secretary of state for India in Council (1861) 5 Bom. HCR
App 1.

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Position Prior to the Constitution;
Before the Constitution of Indian came into existence, the position with regard to the liability of the state for the
torts committed by its servant, is to be found in the decision of Peninsular and Oriental Steam Navigation Co. Vs
The Secretary of the State for India Council. As discussed above, it was held in this case that, if the tort were
committed by the servant of the state in the exercise of the sovereign function, or while performing the sovereign
function, no action would be taken against the state.
Kasturilal Vs. State of U.P.14 In this case, the Supreme Court had relied upon the decision in peninsular and Oriental
Steam Navigation Company’s case. The decision in this case is also a landmark decision with regard to the liability
of the state for torts of its servant. The facts of the case are as under-
In this case, kasturilal was charged with smuggling gold over the border. Some gold pieces found with him were
kept in police custody. The police officer having the gold in his custody ran away with the gold. Kasturilal sued the
Government.
Gajendragadkar J. relied on the decision in peninsular and oriental steam navigation company’s case and held that,
since the government was performing in this case a sovereign function, the Government was not liable. He echoed
justice peacock’ observations-
“There is a great and clear distinction between acts done in the exercise of sovereign power and acts done in the
conduct of undertaking which might be carried on by private individuals without having such power delegated to
them, when act is done or contract is entered into in the exercise of sovereign power, no action can lie.”
Thus, the Supreme Court relied upon the ratio established in the case of peninsular and oriental steam navigation co.
while deciding the question of liability.
It was held in this case that, since the government was performing its sovereign function, the Government was not
liable for the torts of its servant. The supreme court reiterated justice peacock’s observation given in the case of:
Peninsular and Oriental Steam Navigation Co. Vs The Secretary of state for India in Council.
State of Rajasthan Vs. Vidyavathi15-
The facts of this case are that, the driver of a jeep of the collector was bringing it after it was repaired. He drove it
negligently with the result that it mounted on the footpath and knocked down the plaintiff’s husband. In an action
against the Government, the supreme court held that, the Government as liable. The supreme court observed-
“Now that we have by our Constitution, established a Republican form of government and one of the objectives is to
establish a socialist state with its varied industrial and other activities employing a large army of servants, there is no
justification in principle or in principle interest, that the state not be held liable vicariously for tortuous act of its
servants”.

The law on the topic may now be summarized as follow:

14
Kasturilal Vs. State of U.P.
15
State of Rajasthan Vs. Vidyavathi.

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 1) Article 30016 of the constitution lay down that, the state mat sue or may be sued in tort.
2) In determining the liability of the torts of its servants, the old distinction between the sovereign and non-
sovereign functions of the state becomes relevant even today as it is recognized by our Supreme Court. In
other words, the state is not liable for the torts of its servant committed by them while performing the
sovereign functions.
3) The state would not be liable for the act of its servant done in the exercise of the sovereign power.
With a view to determine the extent of liability of the state for tort of its servants the distinction between sovereign
and Non- Sovereign functions has relevance, which is recognized by the Supreme Court of India.

Statutory immunity:
The state should always be not treated on par with private individual. The state is burdened with heavy
responsibilities to perform as a custodian of the public interest and public welfare schemes are often taken up by the
Government. This makes necessary that the state should enjoy preferential treatment in some respects. This done by
conferring certain privileges and immunities upon the state by certain statues.

Conclusion

It can be inferred that the contractual liability of the government is guided by the principles and provisions laid
under both Constitution of India, 1949 and Indian Contract Act, 1872. The peculiarity to the government contracts is
bought with the intention of safeguarding the government from the liability which otherwise might be caused due to
the fault of one public official, thus the degree of care and diligence laid down in the contract entered by government
needs to be more than that of other normal contracts and thus Article 299 lays down the procedure of how to enter
into valid legal contract with the Government to make it enforceable in the court of law. States are liable for the
wrongs committed by their officers, police etc. Courts have been progressive in holding state liable for torts in
various judgements.  The question whether state should be granted immunity was considered by Law Commission in
it's first report. Commission recommended the relaxation of governmental immunity and doing away with the
distinction between sovereign and non-sovereign functions. There was a bill "Government (Liability of Tort) bill"
introduced in parliament in 1965, but it was not passed. Till date there is no clear Law dealing with liability of state
in Torts. In absence of any Law judiciary had taken the responsibility of widening the area of tortious liability of
State.

16
Constitution of India Article 300.