Meaning of Contract

A contract is an agreement which is made between at least 2 people in which

both of them agree to perform an act or abstain from doing the act in return for
some consideration. Section 2(h) of the Indian Contract Act has defined a
contract as an agreement which is enforceable by law. Thus when an agreement
is not against the provisions of law it is a contract.

Government Contract
As the name suggests a Government contract is a contract in which one of the
parties is the Government. The State, as well as the Central Government,
maybe the party in a Government contract. All the Government contracts are
made in the name of President of India.

Position in India
In India, the Contracts can be entered by express as well as an implied
agreement but in cases of Government contracts, the provisions of the
Constitution specifically enumerated in Article 299 has to be followed and the
formalities which are required have to be fulfilled for the formation of such
contracts.

Formation of Government Contract

Under Article 298 of the Indian Constitution, the power of the Union and the
State government to carry on any trade or business has been provided. For the
formation of a Government contract the requirements under Article 299 have to
be fulfilled and if they have fulfilled a contract can be enforced against the
Government.

As per Article 299, all the contracts which are made under the Executive power
of the Union or the State should be made in the name of the President or the
Governor respectively. If a contract is not made under the President’s or
Governor’s name, such a contract will not be considered as a Government
contract.

Under Clause 2 of Article 299, the President or the Governor cannot be held
personally liable for the non-performance of the contract. Thus they are
immune to any personal liability for the breach of contract because the contract
is made in their name only but they themselves do not perform the contract.

While an ordinary contract can be made by express words and by the implied
conduct of the parties, a Government contract should be made expressly. In the
case of Seth Bhikraj Jaipuria v. Union of India, the Supreme Court had
observed that from the words ‘expressed to be made’ and ‘executed’ in Article
299 it is clear that the Government contract should be made by a formal written
contract. The court also held these formalities under Article 299 are of
mandatory nature and they cannot be skipped by the contracting parties. If
there is any contravention of these provisions, then the contract will be nullified
it will not be enforceable against the Government.

These provisions have been made to safeguard the Government against fake
contracts which may be made on their behalf to defraud the people and this is
the reason why implied contracts do not have any scope in cases of
Government contracts.

In the case of K.P. Chowdhary v. State of Madhya Pradesh, the Supreme

Court held that in view of Article 299, a Government contract cannot be created
impliedly and there should be a formal express agreement. In case a person
enters into a contract with Government impliedly, neither he nor the
Government will be able to enforce it in a court.

While the Supreme Court has held in many cases that there should be a formal
express contract, many have argued that it is not practical to always have a
formal agreement and many times the Government officers enter into petty
contracts as well. So, the requirements have been liberated and if the contract
is made in writing and the substantial requirements under Article 299 Clause 1
are fulfilled then a contract will be valid even if all the requirements under this
provision has not been fulfilled.

Contractual Liability in Government

Contracts
Under Article 299 Clause 2, the President and the Governor and the person who
is authorized to act on their behalf are provided immunity from any personal
liability which may be incurred due to non-performance of the contract. This
immunity is provided to them only but it does not mean that the Government is
also not liable for the contract because it would be unfair for the other party.
So the liability of the Government will be the same as is the case in a normal
contract under the Indian Contract Act, 1872. Thus, a person can sue the
Government for the breach of contract and may be awarded damages by the
court.

The courts have also held that in case the Government has derived any benefit
from a person by an agreement which does not fulfil the requirements under
Article 299, the Government will be held liable for compensating the other party
under Section 70 of the Contract Act and such a contract will be deemed to be a
quasi-contract to the extent the Government gets the benefit. This has been
provided to protect an innocent party from suffering loss.

This view has been adopted because the modern Government performs many
functions and in carrying out these functions many petty contracts are also
entered into as a result of which strict compliance with Article 299 is not
observed in many cases. If what has been done by the other person is for the
benefit of the Government and except for compliance with article 299 and all
the other aspects of the contract are proper then, Section 70 should be applied.

Similarly, if a person has derived any benefit from the Government under such
contracts, the Government also has the right to sue that person under Section
70. In the case the Government has made a void contract then it has the right
to recover the benefits given by it from the other party under section 65 of the
Indian Contract Act.

Although Section 70 allows the party to recover the benefits provided by it, it
does not affect the binding character of Article 299. Under Section 70 apart
cannot sue for the specific performance of the contract and he cannot ask for
damages for the breach of contract. Under Section 70, the cause of action is not
the breach of contract but instead, it is aimed to avoid the unjust enrichment to
any party whether a person or even the Government. So, the claim under
section 70 is based on the assumption that the contract is ineffective and thus it
does not amount to a contract at all.

Conclusion
A Government contract is the same as an ordinary contract but under this
contract one of the parties is the Central or the State Government and in
addition to the requirements of the Indian Contract Act 1872, the provisions of
Article 299 of the Indian Constitution also has to be followed otherwise the
contract will not be a valid one.
The formation of Government contract is done by express agreement in the
name of the President or the Governor by a person who is authorized to act on
their behalf and all of them are not personally liable. But the Government is
held liable and contracts can be enforced against it.

Implied agreements cannot become a Government contract. Although strict

compliance with the provisions of Article 299 is required to be fulfilled. But in
cases where there is unjust enrichment, the court allows the party to recover
such benefit provided by them. Therefore, when the provisions of Article 299
are complied with, a Government contract becomes valid and enforceable.