CONTRACTS AND CONSTITUTION-LAW

OF CONTRACTS

1
 CONTRACT MANAGEMENT

• CONTRACTS;
• AND ITS MANAGEMENT

2
 CONTRACTS

• THE WORD CONTRACT IS DERIVED

FROM LATIN WORD ‘CONTRACTUM’
WHICH MEANS DRAWN TOGETHER;
• EVERY PROMISE OR EVERY SET OF
PROMISES FORMIMG THE
CONSIDERATION FOR EACH OTHERS
IS AN AGREEMENT;

3
 CONTRACTS (CONTD)

• CONTRACT IS AN AGREEMENT BETWEEN

TWO OR MORE PARTIES, WHICH IS
ENFORCEABLE BY LAW;
• TO FORM AN AGREEMENT THERE MUST
BE A PROPOSAL OR OFFER BY ONE PARTY
AND ITS ACCEPTANCE BY ANOTHER;
• AGREEMENT= OFFER + ACCEPTANCE;

4
 ESSENTIALS OF A VALID CONTRACT

• A VALID CONTRACT IS ONE WHICH IS

ENFORCEABLE AND BECOMES BINDING ON THE
PARTIES;
• THERE MUST BE A PROPOSAL AND ACCEPTANCE
OR MEETING OF MINDS;
• AGREEMENT MUST BE BETWEEN PARTIES
COMPETENT TO CONTRACT;
• PARTIES MUST GIVE THEIR FREE CONSENT;
• AGREEMENT MUST BE SUPPORTED BY
CONSIDERATIONS WHICH MUST BE LAWFUL;

5
 ESSENTIALS OF A VALID CONTRACT
(CONTD)
• OBJECT OF AGREEMENT MUST BE LAWFUL;
• AGREEMENT MUST NOT HAVE BEEN
EXPRESSELY DECLARED VOID BY ANY LAW IN
FORCE IN THE INDIA;
• AGREEMENT MUST BE CERTAIN AND NOT VAGUE
OR INDEFINITE;
• LEGAL FORMALITIES (STATUTORY
REQUIREMENTS OF MAKING IN WRITING, IN
PRESENCE OF WITNESSES OR REGISTERED OR
SIGNED BY AUTHORIZED PERSONS) MUST BE
COMPLIED WITH;

6
 REQUIREMENTS OF A VALID
CONTRACT
• MUST BE UNCONDITIONAL;
• MUST BE MADE AT THE PROPER PLACE;
• MUST CONFORM TO THE TERMS OF OBLIGATIONS;
• MUST BE MADE AT THE PROPER TIME;
• MUST BE MADE IN PROPER FORM;
• PARTIES MUST BE ABLE AND WILLING TO
PERFORM ITS OBLIGATION;
• THERE MUST BE REASONABLE OPPORTUNITY FOR
INSPECTION;
• MUST BE MADE TO THE PROPER PERSON;
• MUST BE FOR FULL AMOUNT;

7
 OVERVIEW OF CONTRACT LAW

• LAW OF CONTRACTS MAY BE DESCRIBED AS THE

ENDEAVOUR OF PUBLIC AUTHORITIES TO
ESTABLISH A POSITIVE SANCTION FOR THE
EXPECTATION OF GOOD FAITH WHICH HAS
GROWN UP IN THE MUTUAL DEALINGS OF MEN;
• IN CIVIL LAW OR THE LAW OF THE STATE OR THE
LAND, LAW SIGNIFIES A COMMAND FROM A
SUPERIOR AUTHORITY PRESCRIBING A COURSE
OF ACTION, DISOBEDIENCE WHICH WOULD
ENTITLE PUNISHMENT;
• THE OBJECT OF THE LAW OF CONTRACTS IS TO
REGULATE THE DEALINGS BETWEEN
INDIVIDUALS/ PARTIES;
8
 OVER VIEW OF CONTRACT LAW
(CONTD)

• LAW OF CONTRACTS IS NOT THE

WHOLE LAW OF AGREEMENTS NOR
IS IT THE WHOLE LAW OF
OBLIGATIONS; IT IS THE LAW OF
THOSE AGREEMENTS, WHICH
CREATE OBLIGATION AND THOSE
OBLIGATIONS WHICH HAVE THEIR
SOURCE IN AGREEMENT;
9
 OVER VIEW OF CONTRACT LAW
(CONTD)
• BROAD CLASSIFICATION OF LAW- PUBLIC
AND PRIVATE;
• PUBLIC LAW DEALS WITH THE
ADMINISTRATIVE POWERS OF STATE AND
ALSO CERTAIN RELATIONS BETWEEN THE
STATE AND THE INDIVIDUAL;
• PRIVATE LAW DEALS WITH THE RIGHTS
OF SUBJECTS INTERSE;
• INDIAN CONTRACT ACT 1872;

10
 GOVERNMENT AND PRIVATE
CONTRACTS
• MOST OF THE MAJOR INFRASTRUCTURE
PROJECTS IN OUR COUNTRY FOR THE
PRESENT ARE BEING EXECUTED BY
GOVERNMENT AND HENCE MOST OF THE
CONTRACTS ARE PUBLIC CONTRACTS
GOVERNED BY PUBLIC LAW;
• MAJOR PART OF THE GOVERNMENT
EXPENDITURE IS THROUGH THE
PROCUREMENT OF GOODS, SERVICES AND
CONSTRUCTION ACTIVITY;
11
 PUBLIC PROCUREMENT

• PUBLIC PROCUREMENT IS
ACQUISITION OF GOODS, SERVICES
AND PUBLIC WORKS IN A TIMELY
MANNER THAT RESULTS IN BEST
VALUE TO THE GOVERNMENT AND
PEOPLE

12
 CONSTITUTION AND CONTRACTS

• ARTICLES 298, 299, 14 AND 19

13
 ARTICLE 298, POWER TO CARRY ON
TRADE ETC.
• Under this article, Executive power of the Union
and States extends to carrying on of any trade,
disposal of property and making of contracts for
the same I.e. Public Procurement;
• For such PP, the Government does not require any
additional powers, it can have by entering to
contracts;
• The power to enter into contracts for PP is
therefore expressly vested in the Government
under this Article.
14
 ARTICLE 299: CONSTITUTIONAL
REQUIREMENTS OF A GOVERNMENT
CONTRACT
• ALL CONTRACTS MADE IN THE EXERCISE
OF THE EXECUTIVE POWER OF THE UNION
OR STATE BE EXPRESSED TO BE MADE BY
THE PRESIDENT OR GOVERNOR OF STATE
AND ALL SUCH CONTRACTS AND ALL
ASSURANCES OF PROPERTY MADE IN THE
EXERCISE OF THAT POWER SHALL BE
EXECUTED ON BEHALF OF PRESIDENT OR
GOVERNOR BY SUCH PERSONS AND IN
SUCH MANNER AS HE MAY DIRECT OR
AUTHORIZE;

15
 ARTICLE 299: CONSTITUTIONAL
REQUIREMENTS OF A GOVERNMENT
CONTRACT (CONTD)
• NEITHER PRESIDENT NOR GOVERNOR SHALL BE
PERSONALLY LIABLE IN RESPECT OF ANY CONTRACT
OR ASSURANCE MADE OR EXECUTED FOR PURPOSE
OF CONSTITUTION OR ANY ENACTMENT RELATING
TO GOI IN FORCE NOR SHALL ANY PERSON MAKING
OR EXECUTING ANY SUCH CONTRACT OR
ASSURANCE ON BEHALF OF ANY OF THEM BE
PERSONALLY LIABLE IN RESPECT THEREOF;
• IN ORDER THAT PUBLIC FUNDS MAY NOT BE
DEPLETED BY CLANDESTINE CONTRACTS MADE BY
ANY AND EVERY PUBLIC SERVANT THERE SHOULD
BE DEFINITE PROCEDURE ACCORDING TO WHICH
CONTRACTS MUST BE MADE.

16
 EQUALITY OF OPPORTUNITY IN THE
MATTER OF GOVERNMENT CONTRACTS
• ARTICLE 19(1)(G) CONFERS ON ALL CITIZENS A
FUNDAMENTAL RIGHT TO PRACTICE ANY
PROFESSION (INCLUDES TAKING AND EXECUTING
GOVT CONTRACTS) CARRY ON ANY OCCUPATION,
TRADE OR BUSINESS;
• FAIRPLAY IN ACTION MUST BE THE BASIS OF THE
POLICY OF THE STATE- ART 14 APPLIES ALSO
MATTERS OF GOVERNMENT POLICY AND IF THE
POLICY OR ANY ACTION OF GOVERNMENT EVEN IN
CONTRACTUAL MATTERS FAILS TO SATISFY THE
TEST OF REASONABLENESS IT WOULD BE
UNCONSTITUTIONAL; BASIC REQUIREMENTS OF ART
14 IS FAIRNESS IN ACTION BY STATE;

17
 SUMMARY OF GENERAL PRINCIPLES
EMBODIED IN CONSTITUTION
• PROFESSION OF DOING GOVT CONTRACTS IS A
FUNDAMENTAL RIGHT UNDER CONSTITUTION;
• PERSONS PRACTICING GOVT CONTRACTS
CANNOT BE TREATED ARBITRARILY OR
CAPRICIOUSLY;
• GOVT CANNOT LIGHTLY BRUSH ASIDE A
CONTRACTOR WHOSE TENDER IS THE LOWEST;
REASONS FOR REJECTIONS SHOULD BE
REASONABLE, COGENT AND ACCEPTABLE
WITHOUT ARBITRARINESS OR DISCRIMINATION;

18
PRINCIPLES OF PUBLIC PROCUREMENT

• PUBLIC PROCUREMENT SYSTEM CAN

BE SAID TO BE WELL FUNCTIONING
IF IT ACHIEVES THE OBJECTIVES OF
TRANSPARENCY, COMPETITION,
ECONOMY AND EFFICIENCY
FAIRNESS AND ACCOUNTABILITY;

19
PRINCIPLES OF PUBLIC PROCUREMENT
(CONTD)
• PP INCLUDES PROCUREMENT BY GOVERNMENT
AND BY STATUTORY BOARDS AND NON-
MINISTERIAL BODIES;
• PP MUST FOLLOW PRESCRIBED COMPETITIVE
PROCEDURES AND THE RULES GIVE A MAJOR
WEIGHT TO FAIRNESS AND EQUITY;
• PP IS ALSO SUBJECT TO OVERSIGHT BY
LEGISLATURE AND AUDIT (IN ADDITION TO
INTERNAL ACCOUNTABILITY MECHANISMS);
• MISTAKES IN PP CAN HAVE VAST POLITICAL
REPERCUSSIONS OWING TO THE FOCUS THAT THE
MEDIA AND THE PUBLIC PLACE ON THE SUBJECT;

20
PRINCIPLES OF PUBLIC PROCUREMENT
(CONTD)
• A KEY PRINCIPLE OF GOOD GOVERNANCE
PRESUPPOSES CONSISTENT PRINCIPLES
AND REGULATIONS FOR PROCUREMENT;
• INFORMATION AND DOCUMENTATION ON
THESE RULES SHOULD BE WIDELY
AVAILABLE AND THE RULES SHOULD BE
ENFORCED FAIRLY AND CONSISTENTLY;
• THERE SHOULD BE A WELL UNDERSTOOD
SYSTEM FOR REGISTERING AND
RESOLVING COMPLAINTS SPEEDILY;
21
PRINCIPLES OF PUBLIC PROCUREMENT
(CONTD)
• THERE SHOULD BE A WELL
FUNCTIONING SYSTEM FOR DISPUTE
RESOLUTION AND CHECKS ON THE
ARBITRARY BEHAVIOUR OF
PROCUREMENT ENTITIES AND ON
THE INCONSISTENT EXERCISE OF
DISCRETIONARY POWERS IN
CONTRACT AWARD, ENFORCEMENT
AND MANAGEMENT;
22
PRINCIPLES OF PUBLIC PROCUREMENT
(CONTD)
• ACCOUNTABILITY AND TRANSPARENCY
ARE VITAL TO PROCUREMENT
MANAGEMENT;
• LACK OF OVERSIGHT MECHANISM TO
ENSURE ACCOUNTABILITY UNDERMINES
THE CAPACITY OF GOVERNMENTS TO
SECURE THE CONFIDENCE OF
CONTRACTORS AND SUPPLIERS IN THE
PUBLIC PROCUREMENT PROCESS AND
THE TRUST OF CITIZENS IN THE PROPER
USE OF PUBLIC FUNDS;
23
PRINCIPLES OF PUBLIC PROCUREMENT
(CONTD)
• TRUST AND CONFIDENCE CAN BE ESPECIALLY
ERODED BY SECRECY IN PROCUREMENT
TRANSACTIONS AT THE LOCAL LEVELS (ALTHOUGH
A DEGREE OF CONFIDENTIALITY IS ESSENTIAL TO
PROTECT BUSINESS PRIVACY AND THE LEGITIMATE
INTERESTS OF INDIVIDUAL BIDDERS)
• TRANSPARENCY REDUCES UNCERTAINTY AND
INHIBITS CORRUPTION IN PROCUREMENT BY
ASSURING EQUALITY OF ACCESS TO INFORMATION
FOR ALL BIDDERS BEFORE, DURING AND AFTER THE
BIDDING PROCESS;
• THE SYSTEM SHOULD ALSO PROTECT THE
INTERESTS OF THE CITIZENS;

24
PRINCIPLES OF PUBLIC PROCUREMENT
(CONTD)
• SOUND PP POLICIES AND PRACTICES ARE
THUS AMONG THE ESSENTIAL ELEMENTS
OF GOOD GOVERNANCE;
• GOOD PRACTICES REDUCE COSTS AND
PRODUCE TIMELY RESULTS;
• POOR PRACTICES LEAD TO WASTE AND
DELAYS AND ARE OFTEN THE CAUSE FOR
ALLEGATIONS OF CORRUPTION AND
GOVERNMENT INEFFCIENCY;
25
 KET ELEMENTS OF PUBLIC
PROCUREMENT
• CLEAR, COMPREHENSIVE AND
TRANSPARENT LEGAL FRAMEWORK;
• CLEAR CUT FUNCTIONAL
RESPONSIBILITIES AND
ACCOUNTABILITIES FOR PROCUREMENT
FUNCTION;
• EFFICIENT INSTITUTIONAL FRAMEWORK;
• ROBUST MECHANISM FOR ENFORCEMENT
OF POLICY, RULES AND REGULATIONS;
• WELL TRAINED PROCUREMENT STAFF

26
 ESSENTIALS OF GOOD PUBLIC
PROCUREMENT
• ECONOMY: BY OPEN COMPETITION;
• EFFICIENCY: BY EFFECTIVE
PROCESSES;
• FAIRNESS: BY NON-
DISCRIMINATION;
• TRANSPARENCY: BY OPENNESS;
• ACCOUNTABILITY: BY ADHERENCE
TO PROCUREMENT LAW OR ACT;
27
 EQUALITY OF OPPORTUNITY IN
PUBLIC PROCUREMENT
• MERE COMPLIANCE TO THE INDIAN CONTRACT ACT
IS NOT ENOUGH IN CASE OF GOVERNMENT
CONTRACTS, BUT THEY MUST ALSO SATISFY
ARTICLE 14 AND 19
• ARTICLE 14: EQUALITY BEFORE LAW- THE STATE
SHALL NOT DENY TO ANY PERSON EQUALITY
BEFORE THE LAW OR THE EQUAL PROTECTION OF
THE LAWS WITHIN THE TERRITORY OF INDIA;
• HENCE TO SATISFY ARTICLES 14 &19 IN
GOVERNMENT CONTRACTS THE PROCESS OF
PROCUREMENT SHOULD BE FAIR &REASONABLE,
FAIRNESS IN ACTION BEING THE BASIC
REQUIREMENT;

28
 EQUALITY OF OPPORTUNITY IN
PUBLIC PROCUREMENT (CONTD)
• TAKING GOVT CONTRACTS IS A PROFESSIONAL
OCCUPATION TO WHICH EVERY ONE HAS A
FUNDAMENTAL RIGHT;
• PP HAS TO BE OPEN FOR ALL WHO ARE ELIGIBLE;
• SC HAS HELD “TODAY THE GOVERNMENT IN A
WELFARE STATE IS THE REGULATOR AND
DISPENSOR OF SPECIAL SERVICES AND
PROVIDER OF A LARGE NUMBER OF
BENEFITS,JOBS,CONTRACTS,LICENSES,QUOTAS,
MINERAL RIGHTS ETC. THE GOVT POURS FORTH
WEALTH, MONEY,BENEFITS, SERVICES,
CONTRACTS, QUOTAS AND LICENSES…..”

29
 PROCUREMENT LAW

• TO REGULATE PUBLIC PROCUREMENT OF

GOODS, CONSTRUCTION AND SERVICES SO AS TO
PROMOTE THE OBJECTIVES OF:
– MAXIMIZING ECONOMY AND EFFICIENCY IN
PROCUREMENT;
– FOSTERING AND ENCOURAGING PARTICIPATION
IN PROCUREMENT PROCEEDINGS BY SUPPLIERS
AND CONTRACTORS, ESPECIALLY WHERE
APPROPRIATE, PARTICIPATION BY SUPPLIERS AND
CONTRACTORS REGARDLESS OF NATIONALITY
AND THEREBY PROMOTING INTERNATIONAL
TRADE;

30
 PROCUREMENT LAW (CONTD)

– PROMOTING COMPETITION AMONG SUPPLIERS

AND CONTRACTORS FOR THE SUPPLY OF THE
GOODS,CONSTRUCTION OR SERVICES TO BE
PROCURED;
– PROVIDING FOR THE FAIR AND EQUITABLE
TREATMENT OF ALL SUPPLIERS AND
CONTRACTORS;
– PROMOTING THE INTEGRITY OF, AND
FAIRNESS AND PUBLIC CONFIDENCE IN THE
PROCUREMENT PROCESS; AND
– ACHIEVING TRANSPARENCY IN THE
PROCEDURES RELATING TO PROCUREMENT;

31
 VOLUME OF PROCUREMENT

• VOLUME OF PROCUREMENT IS VERY

HIGH; SO ARE THE STAKES;
• GOK ANNUAL PROCUREMENT WAS
ASSESSED AS ABOUT RS.13,000/- CRORES
IN 2001;
• IRREGULARITIES IN PROCUREMENT,
MALPRACTICES/ CORRUPTIVE PRACTICES
IN PROCUREMENT ARE A COMMON AUDIT
OBJECTION; VIGILANCE CASES; SOME
EVEN LEAD TO FALL OF GOVERNMENT;
32
 THE UNCITRAL MODEL
PROCUREMENT LAW
• THE UNCITRAL MODEL LAW ON
PROCUREMENT OF GOODS, CONSTRUCTION
AND SERVICES WAS ADOPTED BY THE
UNITED NATIONS COMMISSION ON
INTERNATIONAL TRADE LAW (UNCITRAL) AT
ITS TWENTY-SEVENTH SESSION; THE
COMMISSION HAS ALSO ISSUED A GUIDE TO
ENACTMENT OF THE UNCITRAL MODEL LAW
ON PROCUREMENT OF GOODS.
CONSTRUCTION AND SERVICES (A/CN.9/403)

33
 PROCUREMENT LAW (CONTD)

• MANY COUNTRIES HAVE A PROCUREMENT LAW;

• SOME COUNTRIES INCLUDING INDIA HAVE
CODES AND MANUALS;
• HOWEVER THESE ARE ISSUED BY
ADMINISTATIVE MINISTRIES /DEPARTMENTS
AND COULD BE CHANGED/REVISED RATHER
EASILY; MAY LEAAD TO INCONSISTENCIES;
• THE REVISION/MODIFICATION OF THE LAW/ACT
REQUIRES THE APPROVAL OF
PARLIAMENT/ASSEMBLY WHICH IS RATHER
TOUGH/DIFFICULT; IT WILL ENSURE
CONSISTENCY;

34
 PROCUREMENT LAW (CONTD)

• IN INDIA PROCUREMENT PROCEDURES ARE

CONTAINED IN THE GENERAL FINANCIAL RULES
(GFR) WHICH HAS BEEN REVISED IN 2005;
• TAMIL NADU IS THE FIRST STATE IN INDIA
WHICH HAS ENACTED A PROCUREMENT LAW; IT
IS NAMED THE TAMIL NADU TRANSPARENCY IN
TENDERS ACT, 1998 AND RULES 2000;
• KARNATAKA IS THE SECOND STATE IN INDIA
WHICH HAS ENACTED A PROCUREMENT LAW; IT
IS NAMED THE KARNATAKA TRANSPARENCY IN
PUBLIC PROCURMEENT ACT 1999 AND RULES
2000; KARNATKA HAS ALSO MANDATED
STANDARD TENDER DOCUMENTS;
35
 PROCUREMENT LAW (CONTD)

• OTHER STATES SUCH AS ANDHRA

PRADESH, ORISSA, PUNJAB ARE
PROPOSING TO ENACT SIMILAR
PROCUREMENT LAWS;

36
 OTHER LEGISLATIONS THAT AFFECT
CONTRACTS
• THE INDIAN CONTRACT ACT, 1872;
• WORKMEN COMPENSATION ACT,1923;
• THE INDUSTRIAL DISPUTES ACT,1947;
• EPF AND MISCELLANEOUS PROVISIONS ACT,
1932;
• THE INDIAN PARTNERSHIP ACT, 1923;
• THE SALE OF GOODS ACT,1930;
• PAYMENT OF WAGES ACT, 1936;
• MINIMUM WAGES ACT,1936;
• EMPLOYEES’S STATE INSURANCE ACT, 1948;
• FACTORIES ACT, 1948;
37
 OTHER LEGISLATIONS THAT AFFECT
CONTRACTS (CONTD)
• KARNATAKA SALES ACT, 1957;
• CONTRACT LABOUR (REGULATION AND
ABOLITION) ACT, 1976;
• MATERNITY BENEEFIT ACT, 1961;
• CHILD LABOUR (PROHIBITION AND REGULATION
ACT, 1986;
• PAYMENT OF GRATUITY ACT,1972;
• THE PUBLIC LIABILITY INSURANCE ACT, 1991;
• ENVIRONMENTAL (PROTECTION) ACT, 1986;
• THE ARBITRATION AND CONCILLIATION ACT,
1996; ETC.

38