The administration is the one who makes the laws sometimes, but can it be made liable for his

actions under the law which it makes? The constitution is made by the state, but Constitution
binds the state too and checks the exercise of power by the state. The personnel in the
administration, both make and implement the laws, and if they commit any negligence because
of which harm is caused to any individual, then can he make a claim against the administration,
under the law of the land. Now the ‘king too can commit wrong’ (and most often it is the king,
i.e. the administration who does the wrong) and he does not evade the chains of laws, if he
neglects law and tries to overpower it, by causing harm to it. How is the liability of the
administration placed then? This question is answered all over in this article. The 2 major areas
where the liability can be entrapped is ‘tort’ and ‘contract’. So liabilities under both is described
serially (with privileges and immunities the administration can claim).
Article 298 provides that the executive power of the Union and of each State shall extend to the
carrying on of any trade or business and to the acquisition holding and disposal property and the
making of contracts for any purpose. Article 299 (I) lays down the manner of formulation of
such contract. Article 299 provides that all contracts in the exercise of the executive power of the
union or of a State shall be expressed to be made by the President or by the Governor of the
State, as the case may be, and all such contracts and all assurances of property made in the
exercise of that power shall be executed on behalf of the President or the Governor by such
persons and in such manner as he may direct or authorize. Article 299 (2) makes it clear that
neither the President nor the Governor Shall be personally liable in respect of any contract or
assurance made or executed for the purposes of this Constitution or for the purposes of any
enactment relating or executing any such contract or assurance on behalf of any of them be
personally liable in respect thereof. Subject to the provisions of Article 299 (1), the other
provisions of the general law of contract apply even to the Government contract

CONTRACTUAL LIABILITY OF STATE

In modern state, whatever be the form of government, the individual is affected in his everyday
life and in the exercise of his civil rights by acts of the State and its officials in various spheres
and in different ways. Some of these acts are done by the State as the sovereign while others are
done by the State in trading and other capacities in the same manner as a private individual
does.1
Hence, the subject of government contracts has assumed great importance in the modern times.
In the modern era of a welfare state, government's economic activities are expanding and the
government is increasingly assuming the role of the dispenser of a large number of benefits.
Today a large number of individuals and business organizations enjoy largess in the form of
government contracts, licenses, quotas, mineral rights, jobs, etc. This raises the possibility of
exercise of power by a government to dispense largess in an arbitrary manner. Therefore, there is

1
Sathe, Section P., Administrative Law, 7th Ed., Lexis Nexis Butterworths, New Delhi 2004 atp.578
a necessity to develop some norms to regulate and protect individual interest in such wealth and
thus structure and discipline the government discretion to confer such benefits.
A contract is an agreement enforceable by law, which offers personal rights, and imposes
personal obligations, which the law protects and enforces against the parties to the agreement.
The general law of contract is based on the conception, which the parties have, by an agreement,
created legal rights and obligations, which are purely personal in their nature and are only
enforceable by action against the party in default. Section 2(h) of the Indian Contract Act,1872
defines a contract as "An agreement enforceable by law". The word "agreement" has been
defined in Section 2(e) of the Act as "every promise and every set of promises, forming
consideration for each other." A contract to which The Central Government or a State
Government is a party is called a "Government Contract".
Government contracts have been accorded Constitutional recognition2. The Constitution, under
Article 298, clearly lays down that the executive power of the Union and of each state extends to
"the carrying on of any trade or business and to the acquisition, holding and disposal of property
and the making of contracts for any purpose". The Constitution therefore, provides that a
government may sue or be sued by its own name. A similar provision is found in the Code of
Civil Procedure 1908 under Section 79.

Position in other Countries

Britain
According to Common Law, before 1947, the Crown could not be sued in a Court on a contract.
This privilege was traceable to the days of feudalism when a lord could not be sued in his own
courts which had arisen out of the theory of irresponsibility of the State as propounded by
Roman Law. Another maxim which was pressed into service was that the "King can do no
wrong". A subject could, however, seek redress against the Crown through a petition of right in
which he set out his claim, and if the royal fiat was granted, the action could then be tried in the
Court. The royal fiat was granted as a matter of course and not as a matter of right, and there was
no remedy if the fiat was refused.
The Crown Proceedings Act,1947, abolished this procedure and permitted suits being brought
against the Crown in the ordinary courts to enforce contractual liability, a few types of contracts
being, however, excepted. It follows, therefore, that regular proceedings now lie against the
Crown for breach of contract, in those cases in which the petition of right earlier lay.
United States of America
in the United States, the principle of immunity of the State as a sovereign power was imported
from England. This led the Congress to enact the Federal Tort Claims Act, 1946, to abrogate,
largely, the immunity of the Federal Government from Tortious liability, subject to specified

2
Basu, D. D., Administrative Law, 6th Ed., Kamal Law House, Kolkata, at p. 371
exceptions. The application of this Act has been further liberalised by the Judiciary in various
cases like Hathley v. U.Section, Rayonier v. U.Section, India Towing Co. v. U.Section etc.
Australia
The Judiciary Act, 1963 lays down the law relating to government liability. In the case of
Sargood Bros. v. Commonwealth it was held that an action lies against the Commonwealth
in contract or tort, in the ordinary manner, by a subject or a state. Similarly, in the case of
Commonwealth v. New South Wales, it was held that a State may be sued in contract or in tort
without its consent. Thus the maxim, the King can do no wrong, has not been applied in
Australia.
The Indian Position
The words 'had not this Constitution been enacted' in Article 300(1) indicate that the basis of
sueability of the state in India is historical. In order to appreciate the significance of these words,
we must trace the history of the Indian Administration from the time of the East India Company,
when the Court was of the view that even though the East India Company has sovereign powers,
if it contracts in civil capacity and if it breaks its contract it would be held answerable. Later the
Government of India Acts (Section 30 of Act of 1915 and Section175 of Act of 1935) expressly
empowered the Government to enter into contracts with private individuals and the
corresponding provision in the Constitution is Article 299(1). In all these Acts it was provided
that the person making the contract on behalf of the Government would not be personally liable
in respect thereof.
The Indian Contract Act, 1872 does not prescribe any form for entering into contracts.
A contract may be oral or in writing. It may be expressed or be implied from the circumstances
of the case and the conduct of the parties. But the position is different in respect of
Government Contracts. A contract entered into by or with the Central or State Government has to
fulfill certain formalities as prescribed by Article 299 of the Indian Constitution. In the case of
State of Bihar v. Majeed3, the Hon'ble Supreme Court held that :
"It may be noted that like other contracts, a Government Contract is also governed by the
Indian Contract Act, yet it is distinct a thing apart. In addition to the requirements of the
Indian Contract Act such as offer, acceptance and consideration, a Government Contract has to
comply with the provisions of Article 299. Thus subject to the formalities prescribed by Article
299 the contractual liability of the Central or State Government is same as that of any individual
under the ordinary law of contract.".
As regards the interpretation of contract, there is no distinction between the contracts to which
one of the parties is the Government and between the two private parties.
Though there is hardly any distinction between a contract between private parties and
Government contract so far as enforceability and interpretation are concerned, yet, some special
privileges are accorded to the Government in the shape of special treatment under statutes of

3
AIR 1954 SC 786
limitation. Section 112 of the Limitation Act, 1963 contains provision for longer period of
limitation of suits on or behalf of the State. The longer limitation period was based on the
common law maxim nulla tempus occurit regi i.e. no time affects the Crown. Some privileges are
also accorded to Government in respect of its ability to impose liabilities with preliminary
recourse to the courts. This probably is because of doctrines of executive necessity and public
interest.
The executive power of the Union of India and the States to carry on any trade or business,
acquire, hold and dispose property and make contracts is affirmed by Article 298 of the
Constitution of India. If the formal requirements required by article 299 are complied with,
the contract can be enforced against the Union or the States. The issue in Administrative Law
mainly arises where the Departmental Authorities and public officials, owing to their inertia or
ignorance, enter into informal contracts which do not comply with the requirements of Article
299(1). There has been a plethora of cases on this point, yet the law is still not well settled.
Article 299 of the Constitution provides :
"(1) All contracts made in the exercise of executive power of the union or a state shall be
expressed to be made by the President or by the Governor of the State as the case may be, and all
such contracts and all assurances of property made in the exercise of that power shall be
executed on behalf of the President or the Governor by such person and in such manner as he
may direct or authorise.
(2) Neither the President nor the Governor shall be personally liable in respect of any contract or
assurance made or executed for the purpose of any enactment relating to Government of India
hereto before in force, nor shall any such contract or assurance on behalf of any of them be
personally liable in respect thereof".
It has been held by the Hon'ble Supreme Court in the case of Bhikaraj Jaipuria v. Union of
India4 :
"it is clear from the words "expressed to be made" and "executed" that there must be a formal
written contract... The provisions of Article 299(1) are mandatory in character and any
contravention thereof nullifies the contract and makes it void. The provisions of Article 299(1)
have not been enacted for the sake of mere form but they have been enacted for safeguarding the
Government against the unauthorized contracts. The provisions are embodied in the constitution
on the ground of public policy on the ground of protection of general public and these formalities
cannot be waived or dispensed with."
The provisions have been embodied to protect the general public as represented by the
government. The terms of the Article have therefore been held to be mandatory and not merely
directory. In 1962, the Court repelled the foregoing view taken in the case of Chaturbhuj v.
Moreswar5 and came to lay down in the case of Bhikaraj v. Union of India6 that the provisions of

4
AIR 1962 SC 113
5
1954) SCR 817 (835)
6
AIR 1962 SC 113.
Article 299 are mandatory and a contravention thereof, would render the contract void. If so, the
pettiness of the contract or the administrative practice was of no avail.
In view of Article 299(1) there can be no implied contract between the government and another
person, the reason being that if such implied contracts between the government and another
person were allowed, they would in effect make Article299(1) useless, for then a person who had
a contract with the government which was not executed at all in the manner provided under
Article 299(1) could get away by saying that an implied contract may be inferred on the facts and
the circumstances of the particular case.
It was held by the Hon'ble Supreme Court in the case of K.P.Chowdhary v.State of Madhya
Pradesh7 that :
"In view of the provisions of Article299(1) there is no scope for any implied contract. Thus
no contract can be implied under this Article.if the contract between the Government and a
person is not incompliance with Article 299(1), it would be no contract at all and would not be
enforceable as a contract either by the Government or by the person."
The Court justified this strict view by saying that if implied contracts between the government
and other persons were allowed, they would in effect, make Article 299(1) a dead letter, for then
a person who had a contract with the government which was not executed at all in the manner
provided under Article 299(1) could get away by pleading that an implied contract be inferred
from the facts and circumstances of the case.
However, the Courts have also realised that insistence on too rigid observance of all the
conditions stipulated in Article 299 may not always be practicable. Hundreds of government
officers daily enter into a variety of contracts, often of a petty nature, with private parties. At
times, contracts are entered through correspondence or even orally. It would be extremely
inconvenient from an administrative point of view if it were insisted that each and
every contract must be effected by a ponderous legal document couched in a particular form.
The judicial attitude to Article 299 has sought to balance two motivations
On the one hand, to protect the Government from unauthorised contracts; and
On the other hand, to safeguard the interests of unsuspecting and unwary parties who enter
into contracts with government officials without fulfilling all the formalities laid down in the
Constitution.
Under Article 299(1), a contract can be entered into on behalf of the Government by a person
aurhorised for the purpose by the President, or the Governor, as the case may be. The authority to
execute the contracton behalf of the government may be granted by rules, formal notifications, or
special orders; such authority may also be given in respect of a particular contract or contracts by
the President/Governor to an officer other than the one notified under the rules. Article 299(1)

7
(1966)3 SCR 919
does not prescribe any particular mode in which authority must be conferred; authorization may
be conferred ad hoc on any person.
Article 300 provides for:
(1) The Government of India may sue or be sued by the name of the Union of India and the
Government of a State may sue or be sued by the name of the State and may, subject to any
provisions which may be made by Act of Parliament or of the Legislature of such State enacted
by virtue of powers conferred by this Constitution, sue or be sued in relation to their respective
affairs in the like cases as the Dominion of India and the corresponding Provinces or the
corresponding Indian States might have sued or been sued if this Constitution had not been
enacted.
(2) If at the commencement of this Constitution:
(1) any legal proceedings are pending to which the Dominion of India is a party, the Union of
India shall be deemed to be substituted for the Dominion in those proceedings; and
(2) any legal proceedings are pending to which a Province or an Indian State is a party, the
corresponding State shall be deemed to be substituted for the Province or the Indian State in
those proceedings.
Principles Underlying Contractual Liability of State
(1) Reasonableness, fairness: The principle of reasonableness and rationality which is legally as
well as philosophically an essential element of equality or non-arbitrariness is projected by
Article 14 and it must characterize every State Action, whether it be under the authority of law or
in exercise of executive power without making of law.
It is indeed unthinkable that in a democracy governed by the rule of law the executive
Government or any of its officers should possess arbitrary power over the interests of the
individual. Every action of the executive Government must be informed with reason and should
be free from arbitrariness. That is the very essence of the rule of law and its bare minimal
requirement. And to the application of this principle it makes no difference whether the exercise
of the power involves affection of some right or denial of some privilege.
In the case of Y. Konda Reddy v. State of A.P8 it was held that like all its actions, the action even
in the contractual field is bound to be fair. It is settled law that the rights and obligations arising
out of the contract after entering into the same is regulated by terms and conditions of
the contract itself. It is settled principle of law that the Court would strike down an
administrative action which violates any foregoing conditions.
In a democratic society governed by the rule of law, it is the duty of the State to do what is fair
and just to the citizen and the State should not seek to defeat the legitimate claim of the citizen
by adopting a legalistic attitude but should do what fairness and justice demand.

8
AIR 1997 AP 121
(2) Public Interest: Public interest is the paramount consideration. There may be situations where
there are compelling reasons necessita